Is The Renewable Energy Sector About To Boom?

When the COVID-19 pandemic passes, the economy will need to be restarted, if not rewired. This may be the chance to implement the much-hyped ‘Green New Deal.’

The renewable-energy sector has continued growing in recent years. According to data from the Electric Reliability Council of Texas, wind and solar generation topped coal’s output in the first quarter of 2019 – something that has never happened before in the U.S. 

In 2019, $55.5 billion was invested in clean energy, a 28% surge on the amount invested in 2018 according to Bloomberg New Energy Finance (BNEF). In part, this is because states like California work towards climate leadership, in defiance of the federal government. 

But not only.

It’s the economy, stupid

This surge is primarily driven by the tumbling costs of renewables, and factors such as greatly improved battery capacities, which has the effect of making solar power cheaper. These technologies have been championed by companies such as Tesla (NASDAQ: TSLA), which has done a lot to improve the efficiency of batteries whilst reducing costs. 

Global companies like First Solar (NASDAQ: FSLR) have also helped drive innovation in the sector. General Electric (NYSE:GE) is also, perhaps surprisingly, one of the largest renewable energy companies with a capacity of 91,609.78 mega watts in 2019. Enphase (NASDAQ: ENPH) is another leader in solar power, and is the world’s biggest supplier of micro-inverters.

Companies like these play an important role in making the industry more competitive and thus efficient. This is often portrayed from an altruistic or progressive slant, both in the media and by the companies themselves. However, rather than getting romantic about it, it’s worth bearing in mind that companies are by their very nature future-orientated, and well-suited to adapt to changes, before cultures and political bodies have digested them. 

Even if oil prices are temporarily in freefall, there is no disguising the fact that one-day oil reserves will run out, never mind the fact that climate catastrophe would be terrible for business. Even big oil companies acknowledge these facts and are taking tentative steps to go green, which may result in the retooling of entire sectors. 

Growth potential

Other companies, like NextEra Energy (NYSE:NEE) should be of interest to investors. NextEra owns Florida Power & Light Company, which serves more than five million customer accounts in Florida and is the largest rate-regulated electric utility in the United States as measured by retail electricity produced and sold. 

NextEra also own Gulf Power company, supplying power to nearly half a million in northwest Florida. Another subsidiary, NextEra Energy Resources, LLC, when counted with its affiliated entities, is the world’s largest generator of renewable energy from the wind and sun and a world leader in battery storage. 

All of this makes the NextEra group well-placed to continue expanding into the sector. Investors should also be attentive to smaller companies with high growth potential in the sector, such as Enviva (NYSE: EVA), which produces sustainably-sourced biomass solutions.

Healed world

Perhaps the subsiding of the COVID-19 pandemic will create an impetus to improve the world, generally. Many consumers and shareholders already possess strong preferences for Green Energy. As BloombergNEF analyst David Doherty has stated, “Shareholder pressure, evolving new technologies and rapidly changing consumer preferences have forced oil and gas companies to re-evaluate their long-term strategies and explore new business streams.” 

Even notoriously reticent “Big Oil” companies spent 1.3% of their budgets, or $260 billion, investing in low carbon energy as early as 2018. Again, this is likely to be down to realism rather than altruism, and it is only a small fraction of their budgets so far. But in a sector that used to concentrate on denying the impact of human activity on the climate, it is significant.

Political Pressure

If former Vice-President Joe Biden’s advantage in the polls translates to a win in the November Election, his ‘Green New Deal,’ will completely transform the energy sector. His manifesto sets the date for the U.S. to achieve net-zero emissions by 2050 at the latest, vowing to help coal workers transition to a new clean-energy economy creating more than 10 million well-paying jobs. This translates into a $5 trillion plan to invest in industry and overhaul energy infrastructure, $1.7 trillion of which would come from the federal government over ten years. 

Combined with falling costs and increased efficiency, this could mean a very bright future for the renewable energy sector. As the saying goes, the best time to plant a tree was twenty years ago, the second-best time is now.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.