Top renewable energy stocks

Renewable energy still has plenty of growth opportunity

Despite the global lockdowns that came with the emergence of the Covid-19 pandemic, it’s evident that there’s been rapid growth in wind and solarphotovoltaic (PV) as renewable energy sources.¹

According to the International Energy Agency (IEA), the United Nations Change Conference (COP26) held in November 2021 shone the spotlight on the reduction of carbon emissions and the use of clean energy. COP26 goals for 2030 include accelerating the phasing out of coal as an energy source, preventing deforestation, speeding up the switch to the use of electric vehicles and encouraging investment in renewables.²

In 2021, China was the global leader in renewable energy installations, and according to IEA predictions this’ll continue for the foreseeable future.¹ However, an increasing number of emerging markets are following suit.

Mobilising the world to be on track with COP26’s target of net zero emissions by 2050 will need an investment of $4 trillion a year by 2030. This’ll allow for the accelerated transition into clean energy.

There’s huge growth expected in clean energy technologies over the next decade in IEA’s Net Zero Emissions by 2050 Scenario (NZE), which is likely to lead to this renewables market being worth a cumulative $27 trillion by 2050.¹ The combined renewable energy market includes wind turbines, solar panels, lithium-ion batteries, electrolysers and fuel cells.

It’s predicted that by 2050, there’ll be about three billion electric vehicles (EVs) globally, which‘ll require three terawatt-hours (TWh) of battery storage. This’ll see batteries grab 60% market share in the clean energy technology equipment sector.¹

^{Source: International Energy Agency, 2018}

Generating electricity will remain the main use case for renewables, which is expected to account for almost 30% of global electricity demand by 2023. Hydropower is expected to be the biggest contributor, accounting for 16% of global electricity demand, followed by wind at 6%, solar at 4% and bioenergy at 3%.

The IEA says around 70% of the new power generation capacity to come online in the period up to 2023 will be powered by renewables, led by solar and followed by wind, hydropower and bioenergy.

How to take a position on renewable energy stocks

1. Invest in renewable energy stocks by opening a share dealing account
2. Trade renewable energy stocks – without taking ownership of the underlying asset – by opening a spread betting or CFD account
3. Practise spread betting and CFD trading in a risk-free environment with a demo account

Alternatively, if you don’t feel ready to start trading at all, you can continue to learn more with IG Academy’s range of online courses.

Top 3 renewable energy stocks: RENIXX-World stocks

The Renewable Energy Industrial Index (RENIXX) is a global index that tracks the 30 largest renewable energy companies by market cap, worldwide.

Some of these companies have diverse portfolios like wind energy, solar energy, hydropower, geothermal energy, bioenergy or fuel cell technology, while others concentrate solely on one power source, such as solar.

Many of the largest players are highly cash-generative, profitable and dividend-paying, and offer relatively stable business models that benefit from reliable revenues sourced from regulated markets.

We share the top 3 renewable energy stocks in more detail below. Note that these stocks have not been chosen as the largest renewable energy shares in the world alone, but rather based on various factors including market cap, future growth prospects, dividends and latest results. This list was last updated on 30 August 2023.

1. Tesla ($758 billion)
2. Verbund ($14 billion)
3. Ørsted A/S ($34 billion)

Keep in mind that despite the global positive shift towards clean energy, this high growth and highly competitive industry can be volatile – resulting in drastic price swings. Keep abreast of news coverage around the sector and these companies when you’re looking to take a position, or are already holding a position on a stock.

You can take a position with us, whether the share price is rising or falling.

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Tesla ($758 billion)

Shares in US-based electric vehicle (EV) and clean energy company Tesla have been something of a mixed bag this year, enjoying a recovery after last year’s slide but down overall by 11% to $254 in August.

The company run by Elon Musk makes world class electric vehicles and associated software, including the software for fully autonomous cars. And, with fossil-fuelled vehicles set to be phased out by governments around the world over the coming years, EVs are likely to be the future.

The shares trade on an eye-watering price earnings ratio of around 60, but the company is bringing home the bacon by ramping up production. In the second quarter, the firm made nearly 480,000 vehicles and delivered over 466,000 of them.

Tesla says the second quarter was another record one, with revenues almost at $25 billion in the quarter alone and the production and delivery levels their highest. The company said in its results that it was “excited that we were able to achieve such results given the macroeconomic environment we are currently in.” It is also busy trying to cut costs.

Admittedly, though, margins have fallen at Tesla as discounts have been applied to sales. Operating margins now stand at around 10%, with price reductions in the first and early second quarters.

Analysts at broker Wedbush, who have an outperform recommendation on the shares, recently increased their price target to $350 from $300, while those at UBS raised their target to $270 from $250, albeit downgrading their recommendation to neutral from buy.

For the moment, momentum seems to be with the shares, which are still some way off their highs of $414 seen in November 2021. The company’s new ‘gigafactory’ in Berlin has the capacity to produce 1,000 vehicles a week and Tesla is well-funded with $23 billion in the bank.

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Verbund ($14 billion)

Shares in Verbund, Austria’s biggest electricity producer, had a great run last year thanks to the spike in wholesale electricity prices across Europe. However, they have since been hit by recent energy price falls, higher interest rates and concerns over regulatory uncertainty in Europe and are down by 22% over the year. Nevertheless, this could be a buying opportunity for patient, longer term investors.

The shares also yield nearly 5% (4.78%) – not to be sniffed at in these tough times. At €76.40, they currently trade on a relatively affordable price earnings ratio of around 12.

The company produces 33 billion kilowatts of electricity a year from hydropower in Austria and Germany. Around two-thirds of Austria’s electricity now comes from harnessing energy from water, and Verbund supplies the majority of this in the country and Bavaria.

The macroeconomic uncertainties and concerns over the possible redesign of the electricity market across the European Union – ie. government clawbacks – have weighed on the shares this year. EBITDA (earnings before interest, tax, depreciation and amortisation) were reduced slightly by windfall taxes.

However, half-year revenues rose by a healthy 41.3% to €6.7 billion, while profits increased by 57.5% to €1.3 billion.

Meanwhile, electricity generation at the company was up 676 GWh (4.4%) to 16,103 GWh in the first half of the year compared with the same period in 2022. Generation from hydropower plants also increased by 947 GWh to 15,054 GWh. Verbund produced more electricity from wind this year – up 4.4% to 16,103 Gwh (gigawatt hours). It is also bringing more solar photovoltaic plants on stream in Spain.

The average sales price for hydropower generation increased by €69.6/MWh to €182.1/MWh during the period. In terms of quantities, electricity sales volumes fell by 1,182 GWh (–3.6%) year-on-year.

Verbund is well placed over the longer term to benefit from the growth in renewable energy and current share price levels offer a decent entry point for investors. Meanwhile, the company is investing heavily in clean energy infrastructure across Europe - including the hydrogen economy - and looks set to play a key part in the move towards renewable energy across the Continent.

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Ørsted A/S ($34 billion)

Danish company Ørsted A/S has reinvented itself from being a fossil fuel-focused energy business to a renewable energy provider. Previously heavily coal-intensive, it is now one of the world’s leading offshore wind energy providers and one of the biggest renewable energy firms by capacity.

The company has projects in the UK, Ireland, Germany, the Netherlands, Taiwan, and the US. The UK is its biggest wind market with 5.6 GW of installed capacity. However, shares in the company recently almost halved due to concerns over problems in its US operations, where supplier delays, high interest rates and an absence of new tax credits are expected to generate a $2.3 billion impairment charge.

Nevertheless, despite the shareprice slide, Ørsted says the potential costs will not affect its earnings guidance for the full year. Last year it won a contract from the UK government for the world’s biggest offshore wind farm – the Hornsea 3 off the coast of Yorkshire. The project will have a capacity of 2,852 MW – enough to power 3.2 million homes in the UK. It has since also won planning consent for a further project, Hornsea 4, which will be one of the world’s biggest wind farms with a capacity of 2.6 gigawatts.

Operating profits for the half-year was DKK10.2 billion, in line with expectations, while earnings from offshore wind increased by DKK3.3 billion. However, bioenergy revenues fell by DKK3.2 billion due to volatile market prices. Ørsted says it is on track to deliver EBITDA of DKK20 billion to DKK23 billion, with higher earnings in offshore wind and lower earnings in bioenergy.

Construction continues on the Greater Changhua project in Taiwan – another of the world’s biggest offshore wind farm projects – after delays due to Covid lockdowns. The remaining turbines should be completed by the year end, while the company’s US South Fork project should also come on line in the fourth quarter. The shares are down 70% since their 2021 peak and may be worth buying for the recovery prospects.

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RENIXX-World stocks constituents

Here’s a list of all of the constituents of the RENIXX-World index:

Sources:

¹ The International Energy Agency, 2021
² COP26, 2021