Renewable Energy Stocks Had A Mixed 2021. Will 2022 Be Better?

by Trefis Team
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Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – had a relatively tough 2021, declining by about 5% over the year, compared to the S&P 500 which gained almost 27%. While the stocks in our theme have posted relatively healthy revenue growth recently, they have been weighed down by the prospect of multiple interest rate hikes, which has made investors sour on high-growth stocks, and also by some regulatory uncertainty, particularly in the U.S. where negotiations on the Build Back Better bill, which planned spending of over $500 billion for the climate and clean energy, is currently stalled. (See our update below on the details of the bill.) Some of the companies have also been weighed down by rising commodity prices and supply-chain issues.

That being said, this recent underperformance could be a buying opportunity. Renewable energy companies stand to benefit considerably from the mounting urgency to tackle climate change. Governments worldwide are likely to accelerate regulation favoring green energy alternatives while also investing more in low-carbon infrastructure. The addressable market for renewables is also sizable, as fossil fuels are a multi-trillion dollar industry.

Within our theme Albemarle stock (ALB) has been the strongest performer over 2021, rising by about 58%. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems.  On the other side, Sunrun stock (RUN) has been the weakest performer, with its stock down by about 51% during 2021. The company designs develop, installs, and maintains residential solar energy systems.

Below you’ll find our previous coverage of the Renewable Energy theme where you can track our view over time.

[11/22/2021] Albemarle, First Solar: Stocks To Watch As House Passes Biggest Climate Spending Bill

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has fared well in recent weeks. The theme remains up by about 25% year-to-date, roughly in line with the broader S&P 500. During our last update in early October, the theme was down by about 2% year-to-date. While the gains are driven by stronger than expected quarterly earnings and guidance by some key companies, the regulatory picture is also looking up for renewable stocks.

Last week, the U.S. House of Representatives passed the so-called Build Back Better bill which is focused on social support and climate change. The $1.75 trillion bill looks to invest over $500 billion in climate programs and is seen as one of the largest efforts by the U.S. government to fight climate change and reduce greenhouse gas emissions. For example, the bill offers tax credits for the installation of renewable energy systems including solar and wind, and also for the purchase of electric vehicles. The bill also provides incentives for the domestic manufacturing of renewable technologies including solar panels and wind turbines. Although the bill will certainly see some modifications in the Senate, it should nevertheless help many of the companies in our theme.

Within our theme Albemarle stock (ALB) has been the strongest performer year-to-date, rising by about 91%. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems.  On the other side, Sunrun stock (RUN) has been the weakest performer, with its stock down by about 21% year-to-date. The company designs develops, installs, and maintains residential solar energy systems.

[10/8/2021]Renewable Stocks Are Lagging Despite Big Opportunity. Should You Buy In?

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – continues to underperform the broader market. The theme remains down by about 2% year-to-date, compared to the broader S&P 500 which is up by close to 19% over the same period. The theme is being weighed down by rising bond yields, which have hurt futuristic and growth stocks, and some delays in the passage of the U.S. infrastructure bill, which earmarks funds to accelerate the development of renewable energy solutions.

Near-term issues aside, the theme is still worth a look for investors wanting to play the long-term transition to renewables. The Biden Administration is serious about doubling down on renewables to tackle climate change. The White House is targeting 80% renewable energy use by 2030 while looking at deriving all U.S. electricity from renewables by 2035. This would mark a massive transition in a fairly short time frame, as the U.S. presently derives just about 20% of its electricity from renewable sources. [1] This is likely to result in considerable regulatory incentives for renewables in the coming years. The estimated cost of a move toward renewable energy could stand at about $342 billion, per a report from researchers at Harvard University, Georgia Institute of Technology, and Syracuse University, translating into solid demand growth for renewable energy companies.

Within our theme Albemarle stock (ALB) has been the strongest performer year-to-date, rising by about 52%. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems.  On the other side, Sunrun (RUN) has been the weakest performer, with its stock down by about 37% year-to-date. The company designs, develops, installs, and maintains residential solar energy systems.

[8/12/2021] Renewable Stocks To Pick As IPCC Sounds Alarm Bells On Climate Change

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has underperformed year-to-date, declining by about 2.5% versus a 19% return on the S&P 500, although it has recovered a bit since our last update in early June when it was down by roughly 15% year-to-date. That being said, there has been a notable development that makes a compelling case for investing in this theme.

A few days ago the Intergovernmental Panel on Climate Change (IPCC) published an alarming report – which is seen as one of the most detailed reviews of climate change ever conducted – outlining how climate change was accelerating. For instance, the report expects that the Earth’s average temperature will reach 1.5 degrees Celsius above preindustrial levels around 2030, a decade earlier than was projected just three years ago. The Secretary-General of the United Nations has deemed the report a “code red” for humanity, noting that it should serve as a “death knell” for the fossil fuel industry.

We believe that renewable energy companies stand to benefit considerably from the greater urgency to tackle climate change. Although returns for renewable energy stocks have been a mixed bag in recent years, due to higher costs or lower practicality versus conventional sources and significant dependence on subsidies, the sector’s time has probably come. Governments are likely to accelerate regulation favoring green energy alternatives while also investing more in renewable infrastructure. Corporates are also likely to do the same. The addressable market is also massive, as fossil fuels are a multi-trillion dollar industry.

Within our theme, Albemarle (ALB) has been the strongest performer this year, with its stock rising by 60% year-to-date. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. On the other side, Sunrun (RUN) – a company that designs, develops, installs, and maintains residential solar energy systems – has been the worst performer, with its stock down by about 29% year-to-date.

[6/7/2021] Even Big Oil Is Getting Serious About Renewables. Which Clean Energy Stocks Should You Pick?

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has underperformed year-to-date, declining by about -15% versus a 13% return on the S&P 500, as investors have rotated out of higher-growth stocks to more cyclical and value stocks to play the re-opening of the economy following Covid-19. However, this might be a good opportunity to invest in the sector. The increasing urgency to fight climate change should result in more favorable regulations, with companies also looking to increase their renewable footprint. For example, even Big Oil doesn’t want to be left out of the clean energy race. BP (NYSE: BP) intends to invest as much as $3 to $4 billion annually by 2025 building out an integrated portfolio of low carbon technologies, including renewables, bioenergy, and EV charging infrastructure. Even Exxon Mobil (NYSE:XOM) which has until recently been somewhat reluctant to double down on solar and wind energy, is also likely to get more serious about its low-carbon investments after activist fund Engine No. 1 – which has been pushing it to invest more in renewables and shift away from fossil fuel – won three board seats at Exxon’s recent annual shareholder meeting.

Within our theme, Albemarle (ALB) stock is has been the strongest performer this year, rising by 18% year-to-date. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. On the other side, Sunrun (RUN) – a company that designs, develops, installs, and maintains residential solar energy systems – has been the worst performer, with its stock down by about 39% year-to-date.

[5/12/2021] Buy The Dip In Renewable Energy Stocks? 

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has significantly outperformed the market, returning about 159% since the end of 2019, compared to a return of 29% for the S&P 500. However, the theme has underperformed year-to-date, declining by about 19% versus an 11% return on the S&P 500, as investors have rotated out of high-growth names to more cyclical stocks to play the near-term recovery from Covid-19. That said, we think the renewable energy sector is likely to grow considerably over the coming years, driven by an increasing urgency to fight climate change and a more favorable regulatory environment in the United States. The U.S. has pledged to cut its greenhouse gas emissions in half by 2030, based on 2005 levels, while targeting net-zero emissions economy-wide by no later than 2050. Many other countries have also set similar long-term targets and this should result in a seismic shift in the $7 trillion global energy market, driving demand for renewable energy technologies. Below is a bit more about some of the companies in our theme and how they have been faring.

Albemarle (ALB) is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. The stock is up 7.5% year-to-date.

NextEra Energy (NEE) the largest U.S. utility by market cap, is also the single largest owner of solar generation capacity outside China. The company is also betting big on battery storage, with plans to build nearly 700 megawatts of storage projects in California before the end of 2022. The stock is down by -2.4% year-to-date.

Bloom Energy (BE) sells solid oxide fuel cell generators called Bloom Energy Servers that use natural gas or biogas as fuel via an electrochemical process without combustion. The company also develops hydrogen fuel cells – that use only hydrogen gas as fuel. The stock is down by -27% year-to-date.

First Solar (FSLR) is the largest U.S.-based solar panel manufacturer. The company’s strong balance sheet and its differentiated thin-film solar panel technology, which finds application in utility-scale projects – should give it an edge as the market continues to expand. The stock is down by -28% year-to-date.

Enphase Energy (ENPH) primarily produces components such as power inverters and control systems for solar installations. These inverters convert the direct current produced by solar panels into the alternating current used by the grid and control the solar power system. The stock is down by -30% this year.

Sunrun (RUN) is a company that designs, develops, installs, and maintains residential solar energy systems in the U.S. The company also offers battery storage systems. With the costs of rooftop solar declining and demand from residential customers rising,  Sunrun has steadily grown revenues in recent years. That said, the stock’s high valuation has meant that it has corrected by almost -36% year-to-date.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

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Notes:
  1. Electricity in the United States, U.S. EIA []
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