Renewable Energy is gradually emerging as one of the most obvious yet promising investment themes globally. The COVID pandemic has induced a flurry of government infrastructure spending and renewables are increasingly becoming the power source of choice due to global political support and financial/economic incentives. Most of the world’s biggest economies have set themselves targets of generating most of their energy from renewable sources by the end of this decade. This is why renewable energy stocks are increasingly exciting!
Over the past decade, the drop in the per-unit cost of renewable energy has far outstripped projections by analysts. Over the past decade, the cost per kWh of wind energy has dropped about 50% while solar is down 80%. Other than the obvious positive environmental impact, renewables boast other advantages such as decentralization because they do not depend on hydrocarbons that often need to be imported from other nations. Apart from decentralization, other advantages include predictability of the ROI due to no variable costs.
Canada is one of the world leaders in renewable energy adoption. The most common renewable energy source in Canada is hydroelectric power followed by wind energy. Hydroelectric power makes up nearly 60% of Canada’s power generation followed by wind. We have compiled a list of the best renewable energy stocks in Canada to gain exposure to the green energy sector.
We believe the following stocks present great opportunities for investors –
1. Innergex Renewable Energy Inc. (TSE: INE)
Innergex is an operator of renewable energy assets across North America, Chile, and Europe. The bulk of the company’s installed capacity is in Canada, followed by the US, France, and Chile. The company operates multiple types of renewable energy plants including wind, solar and hydroelectric plants. Innergex has a share price of C$21.39 and a dividend yield of 3.37%.
As of Q1’21, the company has 37 hydroelectric plants at 33 locations, 6 solar farms, and 33 wind farms. The company adopts a diverse energy source strategy to account for seasonality. Due to the forces of nature, unavailability of water flows, wind velocity, or ample sunlight might lead to lost revenue. By building a diverse asset mix across various geographies, the company has hedged risks of lost revenue due to natural downtime. The company’s strategy of owning and operating its power plant instead of a build and sell a model or signing a fixed-price off-take agreement exposes it to risks of unfavorable changes in power costs. However, we are in a period of high inflation due to global quantitative easing. As the operating costs of Innergex are largely fixed and have low inflation exposure, the current inflationary environment will help the company by increasing its operating leverage.
In Q1, the company reported an EBITDA of $113.6 million. The company projects about $600 million in EBITDA for 2021 (up 7% YoY). However, due to its operator business model, the company has endured high capital costs as a result of which the company is highly leveraged. As of Q1, the company has a debt of $4.8 billion.
2. Boralex Inc. (TSE: BLX)
Like Innergex, Boralex is an operator of renewable energy plants. The company has operations in hydroelectric, solar, wind, and a very minor presence in thermal power. Its plants are situated across Canada, the US, the UK, and France. At the end of 2020, the company had an installed capacity of 2455 MW. Boralex has a share price of C$38.6, a dividend yield of 1.17%, and a P/E of 83.60.
Although Boralex and Innergex share many similarities, one major difference between them is that while Innergex is exposed to fluctuating price and demand of power produced them, Boralex signs fixed-price agreements for the power produced by their plants over a decade. This gives the company predictable cash flow and removes downside risk.
FY20 was a remarkable year for the company as it managed to swing to profitability after a period of unprofitability. The return to profitability was mainly caused by increased demand due to work-from-home and other lockdown measures along with a drop in interest rates which allowed the company to refinance on more favorable terms.
Boralex reported revenues of $619 million in FY20 (up 9.7% YoY) along with EBITDA of $434 million and a net profit of $48.3 million. In Q1’21, the company really stepped up and reported revenues of $206 million and net earnings of $38 million.
Moving forward, the company aims to expand its renewables portfolio. In Q1, it sold its only thermal plant in France to commit to complete sustainability and added 180 MW of renewable assets to its portfolio.
3. TransAlta Renewables (TSX: RNW)
TransAlta Renewables is a subsidiary of Canadian power major TransAlta group. The company has operations in Wind, Solar, Hydro, Energy storage, and Natural gas. The company’s largest cash-flow generating segment is wind, which makes up 50% of CF followed by natural gas, which makes up 43% of CF. Hydro and Solar make up 4% and 3% of CF, respectively. The stock is trading at C$ 20.3 and has a P/E of 38.
All of TransAlta’s assets are tied to long-term price contracts that give the company stability and flexibility to leverage the current asset base for growth. The company has a total installed capacity of 2537 MW and has an expansion pipeline underway. As of Q1, the company has 47 power generation plants across all segments with an average life of 12 years remaining. For FY21, the company projects an EBITDA of between $480 and $520 million and cash-available-for-distribution of $285 million and $315 million. TransAlta has a current dividend yield of 4.65%.
However, where the company really shines is its cheap valuation and low debt, therefore equating to very low downside risk and a high chance of value creation for investors. Compared to peers, the company has average debt-to-EBITDA ratios of 7, TransAlta boasts a debt/EBITDA of just 3.08. Therefore, there is low pressure on the company’s earnings, which can be used to distribute or fund expansions more aggressively or avail cheaper financing than peers. Also, unlike many renewable energy peers (e.g. Brookfield Energy Partners), the company has not done any subsequent equity raises to fund expansion and promoters still hold 60% of the company. This is another avenue management can pursue to fund growth.
4. Northland Power (TSX: NPI)
Northland Power is a developer and operator of renewable assets, most of which are in Europe. As of Q1, the company has an installed capacity of 2.8 GW and a project pipeline extending to between 4GW-5GW depending on the business landscape. Northland has a price of C$41.85, a dividend yield of 2.87%, and a P/E of 34.64.
The company funds projects with asset-backed debt and fixed-price power purchase agreements to service the debt. The company recently raised C$900 million to fund a wind farm in Spain which was acquired for C$520 million, the balance will be held to preserve liquidity and capitalize on opportunities when they arise. The company has 33 renewable power assets – 14 wind sites, 18 PV solar farms, and 1 concentrated solar plant.
The company recently acquired Helia Renovables for C$1.6 billion. The acquisition added about 540 MW to Northland’s portfolio, 424MW in wind assets and 116MW in solar assets. In 2020, Northland generated revenue of C$2B and C$1.17B in EBITDA. In Q1, the company reported revenues of $613 million (down 8%YoY), EBITDA of $360 million (down 14% YoY), and net income of $145 million (down 45% YoY). The drop in financial performance was mainly due to the seasonality of wind velocity. Northland is very susceptible to the seasonality of wind velocity as 60% of its EBITDA comes from off-shore wind facilities, with most of them being in the North Sea region. However, the company believes this underperformance will balance out over the year and maintains its 2021 guidance of $1.1 billion-$1.2 billion of EBITDA.
5. Brookfield Renewable Partners (TSE: BEP.UN)
Brookfield Renewable Partners is the renewables energy arm of private equity firm Brookfield Partners. BRP has built a diverse global portfolio of sustainable energy assets such as wind farms, solar farms, hydroelectric dams, and the storage of captured renewable energy. BRP operates more than 6000 energy sites and has $59 billion of sustainable energy assets under management. BRP has a project pipeline under development that will increase its capacity by 54% to 65GWh. While most other companies on this list are very concentrated in terms of asset type or location, BRP is a very diverse investment opportunity based on the breadth of locations and source of energy for investors. In FY20, BRP generated 42GW/h of renewable energy from its installed base.
BRP operates on a simple yet effective business model. The company relies on mature asset sales, asset-backed debt, and secondary equity issues to fund expansions. Combined with their financial expertise as a major private equity group, the company has grown spectacularly. The company develops assets based on economic opportunity and natural characteristics of the location to ensure value maximization.
BRP posted a $133 million loss and power generation of 13,828 GW for the first quarter of the year. However, the company did report $242 million in funds from operations, up 11.5% YoY. In the quarter, the company made significant moves to strengthen its liquidity to fund expansion through a green bond issue of $350 million and raised $850 million from asset recycling. The loss was attributable to one-time non-cash charges.
6. Etrion Power Corporation (TSE: ETX)
Etrion Power is a developer and operator of utility-scale solar assets. The company was founded in 2012 with its first solar project in Japan. The company is Switzerland headquartered and owns assets in Japan and Chile. The company currently owns 750MW of solar assets, 70MW in Chile, and 680MW in Japan. Etrion trades at C$0.4 and has a market cap of $131 million.
Like most companies on this list, the company’s assets are backed by fixed-price power-purchase agreements to reduce downside risk for the company and allows it to leverage its existing asset base for growth.
The company is currently in the process of negotiating sales for about 100MW Japanese assets of its Japanese assets. The company was very negatively affected by the recent snowfall in regions of its major sites which resulted in a loss of revenues and damages to solar equipment. The company is expecting about $130 million in proceeds from asset sales which it will use to fund more appealing opportunities.
In Q1’21, the company reported a generation of 11,168 MW and revenues of $3.9 million (down 8.2% YoY), and a net loss of $2.4 million. The net loss was due to one-time expenses from the acquisitions and lower generation due to snow. The stock is down 30% YTD and should recover substantially once the asset sales are completed and weather issues blow over. Furthermore, the stock is available at a ridiculous earnings multiple of just 4.74, compared to an industry average of 12. However, investors should note that risk is high.
7. Polaris Infrastructure (TSE: PIF)
Polaris is an operator of a geothermal energy plant in Nicaragua, South America, and a hydroelectric plant in Peru. The company owns and operates the San Jacinto Project in the North West of Nicaragua and two hydroelectric run-of-the-river plants in the Huanuco province of Peru. Polaris trades at C$19.15 at a market cap of C$374 million and a modest P/E of 13.68.
Polaris has a power-purchase agreement with the government of Nicaragua for the next decade which includes an annual price increase and similar PPA’s for its Peru projects.
What is most appealing about this stock is that it is a very stable and safe dividend-paying stock. Polaris boasts a dividend yield of 3.81%, which is substantially higher than what one is offered at bank deposits with the added advantage of instant liquidity. This stock’s downside risk and volatility are extremely low because it has only three operating assets with a fixed revenue streams.
Due to its increasing economic appeal and rise in global climate awareness, renewables are set to be one of the most dominant investment themes globally over the next decade, which is why they must make up a part of every investor’s portfolio. Due to their predictable economics, renewables are loved by capital markets, and there are ample opportunities to invest in such companies.
The simplest way to invest in renewables is to buy equities of companies in the sector or buy renewables-themed ETFs where the choice of equities is left to expert fund ETF managers.
Renewable energy is gaining more and more traction as we see the need for cleaner and non-exhaustive types of energy to power our nations. The best renewable energy stocks all have one thing in common, they are providing innovative tech or modifications to existing tech to secure clean and renewable sources of power.
It is no secret that renewables are becoming increasingly popular around the world because of environmental concerns, but what about Canada?
The Best Renewable Energy Stocks in Canada
Significant progress in renewable energy growth requires industry to develop the technology and invest heavily in research and development and infrastructure.
Taking into account the above and other factors, we have compiled a list of the most interesting renewable energy stocks to buy in 2021. The Renewable Energy Basket includes companies specializing in the following sectors: hydropower, wind, solar, geothermal, hydropower, natural gas, biomass and nuclear. We have some energy stocks for you, with some of our most promising energy stocks, including renewables and the oil and gas industry.
Large / Medium Cap Renewable Energy Stocks
Renewable Energy Penny Stocks in Canada
Canadian Renewable Energy ETFs
Renewable energy stocks are considered to be linked to companies that produce the ability to use this type of energy. The ETF tracks the US Energy Information Administration’s Renewable Energy Index (EIA) and covers companies that produce and distribute renewable energy such as wind, solar, geothermal, hydro, biomass and hydropower. This ETF covers a wide range of manufacturing companies worldwide, including power generation players. It has a portfolio of companies that consists of a large number of solar and wind energy companies as well as hydropower, wind and biomass companies.
Why Renewable Energy Stocks?
Best Energy Stocks to Buy in 2021, titled “What are the best renewable and alternative energy stocks in Canada? ” . Take a look at the top ten renewable energy stocks in your portfolio and boost your earnings despite the relative underperformance of the past year. Best Renewable Energy Stock Canada, “is a comprehensive guide to adding good renewable energy stocks to a dividend portfolio. It is characterised by high dividend yield, high growth potential and strong dividend growth prospects. Sources: 1, 2, 17
With a dividend yield of 4.5% and an average annual dividend growth rate of 6.7%, it is one of the ten largest renewable energy stocks in Canada. Sources: 1
One can imagine investing in clean-energy stocks to shine a brighter future. It has not only destroyed the market, but has also overtaken all renewable energy sources in order to help the environment. Sources: 1, 3
The RenewableEnergyWorld.com blog is a leading publisher of articles on renewable energy resources in Canada and around the world. The last article I ran on renewable energy was titled “3 renewable energy sources that don’t care about the Electoral College.” Sources: 2, 7
NYSE: BEPC generates electricity mainly from water, wind and solar sources and converts it into electricity. Sources: 4, 6, 12, 17
The $5.8 billion company pays a $4.03 dividend and is among the top 10 renewable energy stocks in the US. Canada is now the second largest country in the world in terms of installed renewable energy capacity. Brookfield Renewable first made it to the top spot in the Canadian renewable energy basket in 2016. Sources: 5, 9
Solar energy has become one of the most popular renewable energy sources in Canada and is expected to continue to grow in the coming years. Water still accounts for only 1.5% of Canada’s total energy consumption, but it is still the second most widely used renewable energy source after wind and solar. The NRA says water moves at 1,000 cubic meters per second, more than twice the speed of wind or sun. Sources: 9, 10, 19
Investments in companies producing solar and wind energy, such as Suncor Energy Inc. (NASDAQ: SPY), is considered one of the best renewable energy stocks in Canada with a strong track record. Whether you choose a solar or wind power company, or a combination of both, make sure your investment goals and risk appetite match, and investing in one or more of these companies will be a sound investment. Sources: 8, 9, 11
Why not invest in renewable energy stocks that pay you monthly dividends in the future, rather than investing in oil? Invest your money in renewables – energy stocks can speed up your research and give oil companies a run for their money, and they can give them a run for their money. If you are a pure “play” player for renewable energy, you should know that some of the biggest players in your utilities sector are actively pursuing renewable energy. Instead of moving into the renewable phase, these two companies have the potential to focus on different things like solar and wind power, and natural gas. Sources: 0, 3, 8, 18
Renewable energy stocks may seem an attractive investment, but make sure there are enough takers before you buy the stock. Renewables – Energy shares in the market at a low price, making it less likely that there will be enough “takers” before buying them. Renewable energy stocks can be more acceptable An attractive investment makes it harder to have “enough takers” after you buy the shares. Sources: 1, 3
If you want to invest in renewable energy stocks, it is best to think long term, rather than just short-term gains or losses. Sources: 8
Given that it is a world leader in renewable energy, I think that BEPC will certainly be beneficial in the long term as part of your dividend portfolio. Based in Virginia, BWXT has seen strong growth in its renewable energy portfolio, making it one of the best green energy stocks to buy in 2019. Renewable energies ensure a good stock of renewable energies, which can be added to your portfolio in the new year. Sources: 1, 8, 14
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