What are the best renewable energy stocks for 2021?
Taking a look at the holdings of the most popular clean energy ETFs is a good place to start my hunt for the best renewable energy stocks for 2021.
The top holding in the IShares II Global Clean Energy ETF plc is Vestas wind systems, a Danish manufacturer of wind power plants and wind turbines. The second is Orsted, another Denmark-based wind farm developer, which also produces bioenergy and thermal energy. Also in the top 10 holdings are companies based in the United States. Xcel Energy and Nextera Energy and Enel, an Italian company. These three are power companies. They have natural gas operations, but also major renewable companies.
All of these businesses are profitable. All except Enel and Orsted have increased their income in five years. However, buying foreign stocks in a stock and equity ISA means additional forms to fill out, restricted trading hours, and foreign exchange transactions on buying, selling or receiving dividends. Buy something like the iShares Global Clean Energy ETF or the Invesco Global Clean Energy The ETF takes the hassle out of me and would allow me to be exposed to around 80 clean energy stocks.
Renewable energy stocks in the UK
But, I prefer to choose UK based stocks for my stocks and ISA stocks. There are two that I take a close look at as the best potential for UK renewable energy stocks for 2021. The first is ESS (LSE: SSE), an electricity generator, and the second is Ceres Power (LSE: CWR), a fuel cell company.
Almost two-thirds of SSE’s operating profits come from its renewable division. It plans to triple its renewable energy production by 2030. This would be essential if millions of electric vehicles connect to the grid. I think once investors start to notice that SSE is emerging as the UK’s ‘leading green energy company’, its share price could soar.
However, such transitions can be difficult to achieve. The company believes an investment of £ 7.5bn will be needed over the next five years. In addition, Ofgem is reducing the returns it allows companies like SSE to achieve between 2021 and 2016. This would make it more difficult to generate funds for investment and potentially affect the company’s ability to maintain its dividend. Perhaps SSE should seek other sources of funding if Ofgem becomes difficult, potentially diluting the returns of existing shareholders.
Ceres Power manufactures solid oxide fuel cells that generate energy from natural gas and sustainable fuels such as hydrogen, ethanol and biogas. The company is also investing in reversing the process to make electrolysis cells capable of producing hydrogen by dividing water. Turnover has grown from £ 1.11million to £ 31.68million in the five years to 2020, but the company is still making losses.
Ceres licenses its technology to others for manufacturing in exchange for royalties and milestone payments. Thus, Ceres is running a lean business model, which could be quickly scaled up without making significant capital expenditures.
Shipping seems to be a good application for hydrogen fuel. Ceres has licensed its technology for this use. But German engineering giant Bosch has also allowed it to use land bases and owns around 18% of Ceres. Ceres is a speculative stock, but if hydrogen can grab a decent slice of the future energy mix and Ceres can continue to find new licensing partners, this renewable energy stock could fuel my portfolio. There is also potential for a repurchase by Bosh.
James J. McCombie has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.