Hundreds of billions of pounds are expected to be spent on renewable energy projects over the next few decades. As such, I’ve been looking for companies in the sector to add to my portfolio to profit from this boom.
Here are five renewable energy stocks I would consider buying.
Electricity demand
I think there are two ways to invest in the renewable energy boom. One strategy is to invest in the companies that develop and produce the materials and equipment required to build electricity networks.
BHP is one of the world’s largest copper miners. Therefore, it is one of my favourite companies that fit into this strategy. Estimates suggest the world will have to produce an extra 1m tonnes of copper a year to meet renewable energy demand. Prices could increase 50% from current levels as a result.
These forecasts suggest to me that BHP could be a significant player in the renewable energy boom over the next few years. That said, these are just forecasts at this stage. There’s no guarantee the company will see a significant increase in profitability or demand for copper in the years ahead.
BHP produces a critical raw material for the renewable energy industry. Meanwhile, XP Power is a leading manufacturer of AC-DC power supplies, DC-DC converters, high voltage and RF & custom power products.
These components form vital parts of power networks. I think that as the world moves away from dirty hydrocarbon power towards cleaner renewable energy, demand for these products will grow. That could be great news for XP Power. However, the company’s biggest challenge is competition. Competition in the sector could push down prices and send costs skyrocketing, hurting profitability.
Renewable energy power supply and storage
There are two prominent companies I’d buy in the renewable power sector. These are Greencoat UK Wind and SSE.
The former is a pureplay wind power generator, while the latter is investing billions over the next few years in green energy assets.
Both companies have their benefits and drawbacks. Greencoat only owns wind farms, so it does not have much diversification, which could be a significant challenge for the group if there’s a move against wind power. Meanwhile, SSE has a considerable level of debt. This could hurt the enterprise if there’s a significant increase in interest rates over the next few years.
Even after taking these risks into account, I’d still buy both firms for my portfolio of renewable energy stocks.
Finally, I’d buy the Gresham House Energy Storage Fund Plc for my portfolio. This business is seeking to produce an income stream for its investors by investing in energy storage assets, primarily battery assets across Great Britain.
Renewable energy generation can be volatile as it seems as if there will always be a need for storage operators to balance supply and demand in the system. This demand could grow in line with renewable energy generation.
Unfortunately, this isn’t the only company in the sector. This competition could hit returns and depress profits for Gresham, limiting the firm’s ability to hit its income goals.
