Renewable energy is one of the most disruptive forces in the energy industry in the past decade. Wind and solar have upended traditional coal and natural gas power plants' business models, while alternative fuels are changing how transportation runs. Amid all of the transition, only a few stocks have outperformed the market because the economics of renewable energy are still challenging.
Given where we are today, three Motley Fool contributors think there are huge opportunities in renewable energy stocks if you know where to look. And NextEra Energy Partners (NEP 1.45%), Clean Energy Fuels (CLNE 7.00%), and TPI Composites (TPIC 13.78%) are the three stocks we think you need to own if you love renewable energy.
Owning wind and solar generation
Travis Hoium (NextEra Energy Partners): The real bottleneck in the renewable energy industry isn't technology or cost or any other operating limitation. The bottleneck is really around building and financing more renewable energy projects. When a wind or solar power plant is built, it's usually backed by a power purchase agreement to sell electricity to a utility, and to price that electricity competitively. The project needs to have low-cost financing and someone willing to own the asset for decades. That's where NextEra Energy Partners comes in.
NextEra Energy Partners is a subsidiary of NextEra Energy (NEE -0.52%), which owns 5,330 megawatts (MW) of wind and solar assets that have an average of 15 years remaining on contracts to sell electricity to utilities. That gives the company an incredibly stable cash flow, which it currently uses to pay a 4.2% dividend yield, paid for by using about 70% of the company's cash available for distribution from all cash flows.
What makes this a great stock to own long term is the company's growth prospects. Through NextEra Energy, it has a large pipeline of renewable energy assets to buy with long-term contracts. That flow of projects is expected to fuel a 12% to 15% increase in the dividend through at least the end of 2024. Given the need for asset ownership and the strong dividend being paid, this is a renewable energy stock any investors should want to own today. If you want to know more about this pick, check out my longer explainer here.
Clean energy that's here today
Howard Smith (Clean Energy Fuels): Governments and companies around the world are promoting sustainability initiatives, including attacking climate change. A growing number of transportation fleet operators are arranging to move away from fossil fuels as a means to that end. Clean Energy Fuels has a solution for them today.
Companies like Anhueser-Busch (BUD 1.45%), Walmart (WMT 0.81%) and Republic Services (RSG 0.66%) have reportedly submitted pre-orders for fleets of semi trucks that Tesla (TSLA 0.78%) and Nikola (NKLA -3.23%) are planning to produce in the next several years. But these battery electric or hydrogen fuel cell-powered trucks are still just aspirations.
Clean Energy operates approximately 550 natural gas fueling stations in the U.S. and Canada. Its core, and growing, product is a renewable natural gas (RNG) branded Redeem. RNG is derived from organic waste from dairy farms, landfills, and wastewater treatment plants.
The volume of Redeem supplied to customers has grown to 143 million gallons in 2019, since being introduced in 2013. Clean Energy just announced a new multi-year contract with the New York Metropolitan Transportation Authority (MTA) to supply 25 million gallons of Redeem for its 800 natural gas-fueled buses.
Redeem reduces carbon emissions by up to 70% compared to diesel or gasoline. Energy giants are taking notice. Total (TTE 2.07%) has a 25% stake and supply contract with Clean Energy. And Chevron (CVX -0.15%) and BP (BP 1.69%) have also partnered with the company.
Clean Energy Fuels provides a renewable energy source that's available today for the transportation sector. Investors looking to invest in renewables should look at whether it might fit their portfolio.
An easily overlooked leader in wind energy
Jason Hall (TPI Composites): Investors looking at renewable energy stocks tend to gravitate toward the big, recognized names that consumers are familiar with. Yet some of the best investments in the green energy space are often companies the average person -- or even most investors -- have never heard of.
One that certainly meets that mark is TPI Composites, with shares up 117% since going public in 2016, nearly doubling the gains of the S&P 500 over the same period.
And even with shares within striking distance of the all-time high, and worries about a second 2020 market crash, TPI Composites looks worth buying.
The thesis is simple: It already has a massive share of the global wind turbine blade market, but the next two decades will see an acceleration in the deployment of wind turbines, and the world's biggest wind turbine makers will come to be more reliant on TPI Composites for their blades.
Not only can TPI help turbine makers flex their capacity up or down to meet demand, but by leveraging its manufacturing facilities for multiple customers, it can supply blades in markets a wind turbine maker may not be able to compete in on its own. Additionally, it has some of the best technical capabilities in the industry, and durable competitive advantages including the very high cost to competitive entry.
Looking forward, TPI Composites could prove the best growth stock in renewable energy, even if you've never heard of it.
Renewable energy is the future of energy
The trends show that renewable energy is growing as a share of the energy market worldwide. And NextEra Energy Partners, Clean Energy Fuels, and TPI Composites each have a strong position in their segment of this growing market. For investors willing to ride out the potential volatility of the industry, these are three great renewable energy stocks to buy.