The global economy has an addiction to fossil fuels, burning through an ever-increasing amount of oil, coal, and natural gas. While it is projected that the earth has enough oil in reserve to last the economy through at least 2050, there’s still only a finite amount of these energy resources available. Worse yet, scientists have shown that our continued burning of these greenhouse gas-emitting fossil fuels is quickening the pace of climate change.
Given the severe issues facing fossil fuels, many organizations have been working on developing cleaner, alternative sources of energy to combat these and other problems. While the renewable energy industry is still developing, sector leaders are beginning to emerge. Given their size and expertise, these companies will likely be key players as the industry continues growing in the coming decades.
Investors who are learning how to invest in renewable energy stocks should get to know these industry leaders. That way, you’ll have a better understanding of what made these companies successful, which should help you identify the characteristics needed to win in the renewable energy sector.
Image source: Getty Images.
The biggest alternative energy companies
The renewable energy industry is broad. It includes:
- Entities that generate electricity from the wind, sun, and water
- Companies that make systems and components to produce renewable energy
- Businesses that manufacture battery systems to store renewable energy
- Companies focused on building electric cars and recharging infrastructure
- Entities that make renewable fuel replacements such as wood pellets, ethanol, renewable natural gas, and biodiesel
The 10 largest companies that generate a majority of their revenue from one of those activities — and also trade on the major U.S. stock exchanges — are on the following chart:
The 10 Largest Renewable Energy Stocks
NextEra Energy (NYSE:NEE)
A utility focused on wind and solar power
Electric vehicles, solar panels, and battery storage
First Solar (NASDAQ:FSLR)
Solar panel manufacturer
Brookfield Renewable Partners (NYSE:BEP)
SolarEdge Technologies (NASDAQ:SEDG)
Solar optimizers and inverters
Enphase Energy (NASDAQ:ENPH)
Ormat Technologies (NYSE:ORA)
TerraForm Power (NASDAQ:TERP)
Wind and solar power generation
NextEra Energy Partners (NYSE:NEP)
Renewable power generation and natural gas pipelines
Atlantica Yield (NASDAQ:AY)
Clean power generation, electricity infrastructure, water assets
Data source: YCharts. NOTE: Market capitalization as of Aug. 11, 2019.
We’ll take some time to look at each one of these renewable energy stocks and to focus on why they’ve grown to be so important to the development and advancement of clean energy.
1. NextEra Energy: The world’s largest producer of wind and solar energy
NextEra Energy is an energy-focused holding company. It operates two Florida-based utilities (Florida Power & Light and Gulf Power) and an energy resources segment that mainly invests in clean energy assets. Together, the company’s business units lead the world in producing renewable energy from the wind and sun. In addition to that, NextEra is a world leader in battery storage.
In 2019, NextEra’s energy resources segment owned or operated 15.1 GW of wind and 2.5 GW of solar power generating capacity. That’s enough to power 12.8 million average American homes — although due to intermittency and other issues, the actual electricity generated would at best only cover half that number. Meanwhile, the company had another 11 GW of renewable energy projects in its backlog as of the middle of 2019. That gives it plenty of power to grow its lead in the coming years.
NextEra Energy grew into the world’s largest renewable power producer by building projects and selling the electricity generated to end users under long-term, fixed-rate power purchase agreements (PPAs). That business model made it a trusted partner for companies that wanted to go green. Meanwhile, its focus on securing contracts that lock in pricing provides it with predictable cash flow to reinvest into new developments so that it can continue growing.
Image source: Getty Images.
2. Tesla: More than just an electric-car company
Tesla is an auto manufacturer focused on developing plug-in electric vehicles (EVs). In 2018, it ranked as the largest EV maker, selling nearly 250,000 units, which was 12% of the market. In addition to making cars, the company also manufactures rooftop solar panels and battery storage units.
The company took a unique approach to achieve its goal of eventually building affordable EVs. It started by making a premium sports car targeted toward early adopters. It rolled its learnings from that venture into other vehicles that targeted broader markets, first luxury and then the mid-sized sedan segment.
Tesla has also taken a different operating path than most automakers. Instead of relying on third parties to build the components it needs, Tesla has developed many in-house. Among its most significant investments has been that in building out a large-scale battery manufacturing facility called a Gigafactory to drive down costs. The company’s Gigafactory 1 is the world’s largest battery factory and has the lowest cost per kilowatt-hour. It produces almost half of the battery capacity needed to power the global electric vehicle industry.
Tesla has helped shrink the cost of manufacturing EVs, which has made them more affordable. That’s helping accelerate their adoption so that they’ve become more mainstream. However, by growing the EV market, Tesla has also increased its competition, because both big automakers and new entrants have poured money into building their own EVs.
In addition to its vertical integration, Tesla has also sought out horizontal opportunities to expand its renewable energy ecosystem. The company, for example, acquired a solar panel manufacturing and installation company, Solar City, in 2016. Thanks to that, it can offer customers a complete system to generate and store electricity at their homes, which they can use to recharge their EVs.
3. First Solar: Focused on thin-film solar
First Solar specializes in manufacturing thin-film solar modules that use cadmium telluride as a semiconductor instead of crystalline silicon, which is common in most other panels. First Solar’s modules have a larger size overall and are more expensive. However, they can produce more energy per panel, which makes them cheaper on a cost-per-watt basis. That has made these panels ideal for utility-scale solar projects because they generate lots of lower-cost renewable energy.
The company has invested heavily to stay one step ahead of its rivals. It has done that by spending money on research and development as well as on building out its manufacturing capacity. The company began rolling out its latest breakthrough product, the Series 6 module, in 2018. It invested more than $1 billion in the product, which included constructing manufacturing facilities in the U.S. and Asia.
Another driving force behind First Solar’s rise in the solar sector is that it has one of the best balance sheets in the industry. The company expects to end 2019 with $1.8 billion of net cash on its balance sheet. Add that to the free cash flow the company should generate as it transitions fully to the Series 6 module, and it has tremendous financial flexibility. That gives it the funds to continue investing in groundbreaking products that make solar energy more affordable and efficient.
4. Brookfield Renewable Partners: A leader in hydropower
Brookfield Renewable Partners is a publicly traded partnership created by leading asset manager Brookfield Asset Management to own and operate renewable energy assets around the globe. The company initially focused on owning hydroelectric power generating plants. However, it has diversified over the years to also operate wind, solar, and energy storage facilities. In 2019, hydropower remains the largest contributor at 75% of its portfolio.
The company makes money by selling most of the power it generates under long-term, fixed-rate PPAs with end users. Those agr