The shift to renewable energy stocks is gathering speed, as established companies increasingly invest in green initiatives, while smaller firms develop innovative technologies to drive the industry forward. It's estimated that $11.5trn will be invested in new power generation by 2050, with $8.4trn in wind and solar energy, and $1.5trn in other zero-carbon technologies.
So, where should investors interested in renewable energy stocks start? We look at the companies, ETFs, stocks and industry-moving events to watch out for.
Estimated amount to be invested into new power generation by 2050
Renewable energy stocks on the rise
Clean-energy ETFs, which include generators of sustainable electricity, electrical equipment and component makers, semiconductor manufacturers and traditional industrial and energy companies, have performed strongly – and not only over the last year.
The top-performing among 12 US-focused ETFs picked out by MarketWatch last week include the Invesco Solar ETF, up 87% in 2020 and 179% over the last three years, the Invesco WilderHill Clean Energy ETF, with 66% gains year-to-date and 157% over three years, and the First Trust Nasdaq Clean Edge Green Energy Index Fund , which is up 64% so far in 2020 and 122% over three years (as of last Friday’s close).
All but one of the 12 renewables-focused ETFs has comfortably outperformed the SPDR S&P 500 ETF, which is designed to track the S&P 500 index. The SPDR S&P 500 ETF has gained 4% this year and 40% over three years, according to MarketWatch.
Share price rise of the Invesco Solar ETF over past 3 years
Renewable Energy basket outperforms
Reinforcing the rise in renewable energy stocks, CMC Markets’ Renewable Energy basket is the best-performing of its 22 share baskets so far this year, having risen around 65% – for context, the next best-performing baskets, Collaborative Technology and Gaming, have recorded circa 40% gains year-to-date.
Of the basket’s 18 renewable energy stocks, Vivint Solar [VSLR] has leapt 33.05% during the last month, with Sunrun [RUN] jumping 32.83% – and both these clean-energy stocks have gained more than 63% in the last three months. Renewable Energy Group [REGI] isn’t far behind, rising 31.78% over the previous month, and 57.69% over three months. The largest-weighted stock in the basket, Enphase Energy [ENPH], is up 26.03% and 39.23% over one and three months respectively.
Price rise of the CMC Markets’ Renewable Energy basket so far this year
UK oil majors move towards renewables
The increasing positivity towards renewable energy stocks has seen Royal Dutch Shell [RDSA] take further steps to try and future-proof its business by moving away from fossil fuels. The oil major announced last week that it will be cutting up to 9,000 jobs by the end of 2022, as it looks to reduce refining capacity in the face of declining margins and lower demand. Shell hopes to make annual cost savings of $2bn-$2.5bn.
CMC Markets’ chief market analyst, Michael Hewson, argues that “changes such as these have been a long time coming for the oil and gas majors … now they need to go the extra mile and invest a greater percentage of their annual capex in renewables, and steal a march on their US counterparts who appear to be asleep at the wheel.”
Biden election win could benefit renewable energy stocks
While the tech sector is likely to feel nervous about a Joe Biden US election triumph, due to potentially higher taxes, “renewable energy stocks could well continue their recent outperformance”, according to Hewson.
“A green new deal has been regularly touted by Democrats, who have never made any secret of their dislike of the big US oil companies, who have done little to prepare themselves for the big shift that is coming, away from oil and gas towards much greener energy.”
“A green new deal has been regularly touted by Democrats, who have never made any secret of their dislike of the big US oil companies, who have done little to prepare themselves for the big shift that is coming, away from oil and gas towards much greener energy” - CMC Markets’ chief market analyst, Michael Hewson
While Hewson outlines what could be ahead in the not-too-distant future, he highlights the already strong performance of renewable energy stocks thus far in 2020, as borne out by the strong showing of the Renewable Energy basket. “Enphase Energy and First Solar are just two of the technology and energy companies that could do well in the upcoming shift to more sustainable sources of power.”
As US election day approaches, there may be a growing trend towards significant outflows from sectors that have historically done well, to areas like renewable energy stocks, which could be in line to benefit should Biden manage to lead the Democrats to victory.