According to the US Energy Information Administration’s baseline forecast, Americans will use 40 percent more electricity by 2050 than in 2010, notes Roger Conrad, editor of Conrad's Utility Investor.
And more than half of that will come from new wind and solar, driven by the combination of favorable government policies, continued declines in the cost curve and development of energy storage.
Contracted renewable energy companies have sagged since early 2021, first following the collapse of the so-called Biden trade and later in the wake of a knee-jerk investor reaction to the threat of rising interest rates.
But the likes of Portfolio holdings Atlantica Sustainable (AY), Brookfield Renewable Partners (BEP) and its C-Corp alternative Brookfield Renewable Corp (BEPC), Clearway Energy (CWEN) and NextEra Energy Partners (NEP) have stuck to plan, consistently growing output and dividends. And now they’re showing signs of waking up from their long slumber.
The best in class is still NextEra Energy Partners, which remains on track to grow its dividend 15 percent this year. The company’s greatest strength is its inside connection to parent NextEra Energy’s (NEE) rapidly growing contracted wind and solar portfolio, which tallied 19.4 gigawatts of capacity at the end of 2020 with another 30 GW in development to enter service by the end of 2024.
Those projects are all eligible for dropdown to Partners. NextEra has consistently demonstrated financial support to its affiliate over the years and is now reaping the rewards of controlling what’s in effect a self-sustaining alternative funding vehicle for its own growth. NextEra Energy Partners and NextEra Energy are both buys at a price below 80.
My top global renewable energy play is still Enel SpA (Italy: ENEL) (OTC: ENLAY), which at the end of Q2 had 85.5 GW of renewable energy capacity.
Management in late September announced the company is on track to reach global capacity of 145 GW by 2030, while phasing out coal use by 2027. It also intends to boost electric vehicle charging points from around 200,000 currently to more than 4 million, and electric bus charging station to 10,000 over the same time frame.
That represents a massive investment some apparently doubt, judging from the stock’s discounted valuation of 12.8 times expected next 12 months earnings. And the pessimism likely stems from the company’s extensive presence in several South American countries, as well as Spain’s attempt to deal with a severe energy crisis by attempts to limit so-called windfall profits from generators.
Such short-term actions have a way of burning governments. But whatever happens, Spain’s moves won’t derail Enel’s growth strategy. Nor will they appreciably increase the company’s cost of debt capital, judging from the $4.1 billion in low cost green bonds issued late last month. Now yielding 5 percent plus with another increase on tap, Enel’s ADRs traded at “ENLAY” are a buy up to 12.
