Two years ago, The New York Times disclosed Bank of America’s (BAC) decision to cease financing coal mines, coal-burning power plants, and Arctic drilling projects due to environmental concerns. However, the bank has now reversed its stance, subjecting such projects to “enhanced due diligence” in its latest environmental and social-risk policy.
Amid mounting Republican opposition to corporate consideration of environmental and social factors, Texas and West Virginia have introduced financial regulations to resist denying banking services to fossil fuel companies. In New Hampshire, legislators aim to outlaw ESG (environmental, social, and governance) practices in business, reflecting a broader political backlash.
In this context, coupled with global tensions in Europe and the Middle East, banks such as BAC and JPMorgan are shifting focus away from ESG principles, as evidenced by JPMorgan's retreat in its annual climate report, toward practices emphasizing energy security.
Simultaneously, the combustion of fossil fuels remains the primary driver of global warming. The United Nations warns that rising temperatures alter weather patterns and disrupt natural equilibrium, intensifying extreme weather events like hurricanes, droughts, and heatwaves, exacerbating their frequency and severity.
These shifts are already manifesting tangible impacts. In 2023, the Amazon basin faced drinking water shortages due to historically low rainfall. Catalonia, Spain, declared a state of emergency earlier this year due to the "worst drought in modern history," illustrating the immediate consequences of climate change.
Given the recent backlash against BAC's environmental stance and the urgency of climate change, it's crucial to prioritize sustainable investments and align portfolios with ecological values. The three renewable energy stocks discussed below exemplify solid environmental commitments and long-term sustainability goals.
NextEra Energy, Inc. (NEE)
NextEra Energy, Inc. (NEE), a prominent utility giant, is reshaping the renewable energy panorama with remarkable advancements in wind and solar energy production. Leveraging its subsidiary, Florida Power & Light, and substantial investments in clean energy, the company has emerged as a pivotal force driving the nation's shift towards sustainable power origins.
In 2023, NEE achieved more than 9% growth in full-year adjusted earnings per share compared to 2022. The success was attributed to robust operational and financial performance across FPL and NextEra Energy Resources, surpassing adjusted earnings expectations and consistently delivering long-term shareholder value.
Over the past decade, NEE has consistently delivered compound annual growth in adjusted EPS of approximately 10%, the highest among the top-10 power companies. In contrast, other top companies in the sector have seen an average compound annual growth in adjusted EPS of around 2% during the same period.
NEE achieved its best-ever year for new renewables and storage origination in 2023, adding approximately 9,000 megawatts to its backlog. Anticipating a substantial surge in electricity demand due to factors like artificial intelligence, electrification, and cloud capacity, CEO John Ketchum forecasts an 81% increase in electricity demand over the next five years.
Renewable generation could triple or more, reaching 370 to 450 gigawatts, to meet this demand. To meet this increasing demand, NEE has developed a system to identify suitable locations for new data centers based on solar and wind resources and transmission line access. This should bode well for the company's growth.
For fiscal 2024, NEE maintains its adjusted earnings per share expectations between $3.23 and $3.43. Projected growth for 2025 and 2026 is set at 6% to 8% based on the 2024 range, translating to $3.45 to $3.70 for 2025 and $3.63 to $4.00 for 2026.
Clearway Energy, Inc. (CWEN)
Clearway Energy, Inc. (CWEN) is one of the United States’ largest renewable energy proprietors, boasting approximately 6,000 net megawatts (MW) of installed wind, solar, and energy storage projects. Among its assets are about 8,500 net MW, including roughly 2,500 net MW of environmentally friendly, highly efficient natural gas generation facilities.
The preceding year, CWEN committed around $215 million to new long-term corporate capital investments and secured new Resource Adequacy contracts at Marsh Landing and El Segundo, providing greater visibility into future growth opportunities.
In December 2023, CWEN's indirect subsidiary acquired a stake in Texas Solar Nova 1, a 252 MW operational solar venture in Kent County, Texas, for $23 million in cash. Supported by power purchase agreements with reliable counterparties, this project showcases CWEN's dedication to sustainable energy initiatives.
With total liquidity reaching $1,505 million by December 31, 2023, a $139 million increase from the previous year, CWEN demonstrated robust financial health. This was bolstered by refinancing the revolving credit facility, raising its total capacity to $700 million, and additional project-level restricted cash from growth investments.
In 2023, CWEN's Cash Available for Distribution (CAFD) landed within its revised guidance range of $330 million to $360 million, totaling $342 million. In the fourth quarter, the company achieved commercial operations on Daggett 2 and Texas Solar Nova 1, positioning itself for further CAFD growth in 2024 and beyond.
Committing approximately $215 million to new corporate capital deployments in 2023, CWEN aims for an average five-year annual CAFD yield of about 10%, diversifying its portfolio further. The company announced a 1.7% dividend increase for the quarter, targeting a 7% growth rate for 2024.
Reaffirming its CAFD guidance of $395 million for 2024, CWEN remains on track to achieve its long-term growth targets. Moreover, with a sponsor's 29-gigawatt renewable pipeline, CWEN anticipates significant asset additions to its portfolio by the mid-decade, ensuring sustained growth and delivering competitively priced energy while reducing risk.
Investors can anticipate a robust growth trajectory from CWEN's sponsor, which will translate into substantial asset augmentation for CWEN's portfolio in the coming years.
Atlantica Sustainable Infrastructure plc (AY)
Atlantica Sustainable Infrastructure plc (AY) specializes in sustainable infrastructures, focusing on renewable energy assets with a robust portfolio of 2.2 GW operating assets spread across North and South America and the EMEA region.
In March, AY finalized the acquisition of two wind assets in Scotland, marking its entry into the United Kingdom market. These assets are regulated under U.K. green attribute regulations and have a combined installed capacity of 32 MW.
AY also saw significant progress in its U.S. development team last year, with several new solar assets reaching commercial operation. Presently, the company has three fully contracted projects under construction or about to start construction in the U.S. Southwest, benefiting from the Investment Tax Credit (ITC).
The company's renewal pipeline has expanded by 12% compared to last year. On March 1, 2024, AY committed or earmarked $175 million to $220 million in new investments, predominantly allocated to solar and storage projects in the United States, representing a significant portion of its investment target.
AY expects to supplement this with additional developments and targeted acquisitions. Most of the company’s investments will be directed toward solar and storage projects already contracted in the United States, including Coso 1, Coso 2, and a new project called Overnight, alongside investments in other geographies such as South America and Europe.
Such strategic investments are poised to enhance AY's prospects significantly. In full-year 2023, AY's revenue remained stable at $1,099.9 million, with adjusted EBITDA reaching $794.9 million, showcasing a 1.7% increase from 2022. Cash available for distribution totaled $235.7 million, aligning with yearly guidance.
Looking ahead to 2024, AY anticipates adjusted EBITDA in the range of $800 million to $850 million and cash available for distribution from $220 million to $270 million, reflecting its continued growth trajectory and commitment to sustainable infrastructure development.
Bottom Line
The transition toward renewable energy is one of our time's most significant investment trends, with trillions of dollars set to be invested in decarbonizing the economy over the upcoming decades. This investment surge is expected to fuel above-average growth for companies focused on renewable energy sectors in the years ahead.
Despite natural gas maintaining its position as the primary fuel source for U.S. power generation, accounting for more than 40% of generation in the fourth quarter of 2023, most new capacity additions have been concentrated in renewable energy sources such as solar, wind, and battery storage.
Natural gas benefits from its abundant availability and low cost in the United States, while coal's contribution to generation fell to 16% in the fourth quarter of 2023, down from 19% in the same period in 2022. Renewables (excluding hydroelectricity) saw their market share increase to 16% in the fourth quarter of 2023, with solar accounting for approximately 3.5% and wind comprising 12.5% of utility-scale generation.
Further, forecasts predict wind and solar to rise to nearly 45% of generation by 2032, marking a significant increase from current levels. Much of this growth is expected to come at the expense of coal, which is forecasted to continue declining due to its high emission profile.
Investing in renewable energy stocks presents a compelling opportunity amid changing environmental landscapes and evolving market dynamics. These companies are distinguished by their strong commitments to sustainable energy initiatives and consistent financial performance.
Leading utility company NEE is at the forefront of renewable energy transformation, with substantial investments in wind and solar energy production driving the nation's transition towards sustainable energy sources. The company's consistent growth in adjusted earnings per share highlights its resilience and potential for long-term value creation.
Emerging players such as CWEN and AY are also making significant strides in renewable energy ownership, boasting diverse portfolios of wind, solar, and energy storage projects. Their strategic investments and steady cash flow generation position them for continued growth in alignment with the rising demand for renewable energy solutions.
As renewable energy stocks are expected to remain relevant amid growing efforts to combat climate change worldwide, consider adding NEE, CWEN, and AY to your portfolio now.
