Now that the Biden Administration is in the White House and Democrats control Congress, the long-talked-about Green New Deal could become a reality. The full agenda may be a long shot to pass Congress, but even if portions of the proposal move forward, there may be huge tailwinds for clean energy stocks.
Let's break down the industry into four areas of opportunity and highlighted the companies leading the way. If a Green New Deal materializes, they might be big winners for investors.
Solar energy and energy storage
Residential solar energy is one of the most significant disruptions in energy markets in a century. Instead of relying on a centralized grid, rooftop solar allows homeowners to become energy producers rather than just consumers. Energy storage takes that to the next level by giving homeowners a valuable and dynamic asset that can tie into the grid. The combination gives them the opportunity to generate their own electricity and provide it to the grid at high-value times.
SunPower (NASDAQ:SPWR) is an industry leader in residential solar and has built an asset-light business model with both residential solar and energy storage. It provides tools to local dealers for lead generation, project bidding, solar system design, monitoring, and even energy storage management. As a solutions provider in the solar and energy storage business, SunPower is well-positioned to grow if the solar industry gets a boost from federal policies.
Enphase Energy (NASDAQ:ENPH) is a partner of SunPower in microinverters and has developed a valuable niche in that space. It's now expanding into energy storage as well, trying to turn tens of thousands of small solar installations into a virtual power plant business. As a component supplier, the company can work with a diverse customer base -- including SunPower and solar panel manufacturers -- that will fuel the business as solar grows.
The hydrogen economy
Energy storage has long been needed to make a green economy work because the sun doesn't shine and the wind doesn't blow all of the time. Batteries have filled some of those short-duration needs (seconds, minutes, and hours of energy) on the grid, but long-duration energy storage is needed as well. The outages in Texas this week are an example of a case where having days of energy stored and deployable throughout the grid would be extremely valuable.
Bloom Energy (NYSE:BE) is one of the industry leaders in fuel cells for commercial and utility applications. The company is transitioning its fuel cell business from primarily natural gas-powered (where most hydrogen comes from today) to clean hydrogen. To make that a reality, Bloom is deploying an industrial-scale electrolyzer that will turn clean electricity and water into storable hydrogen that its fuel cells can use later to produce electricity. If there's a Green New Deal, hydrogen could play a big role in transforming the electric grid.
Plug Power (NASDAQ:PLUG) is another fuel cell company that's trying to grow its business from hydrogen-powered forklifts to vehicle and grid services. That includes developing its own electrolyzer and an industrial-scale fuel cell module. Plug Power is also trying to put fuel cells into commercial vehicles and even airplanes, which could both be big markets if hydrogen proves to be a viable fuel alternative.
A decade from now, hydrogen could play a much bigger role in our energy infrastructure. It's clean, and costs are coming down rapidly. And that creates a huge opportunity for companies like Bloom Energy and Plug Power.
Electric vehicles (EVs) are one of the key components to a green future, and dozens of automakers are working on developing and manufacturing EVs right now. Tesla (NASDAQ:TSLA) clearly leads the narrative, but two worth highlighting for their scale and upside are General Motors (NYSE:GM) and Fisker (NYSE:FSR).
GM has a goal of transitioning its entire slate of vehicles to electric by 2035 and has a number of new models hitting the streets in the next few years. The Hummer EV will be a test of the high-end truck market, The Bolt EV and EUV are more economy models, and the Cadillac LYRIQ will be an all-electric luxury crossover that should compete with Tesla. Combine these models with GM's majority ownership of autonomous ridesharing company Cruise, and it looks like a company with a bright future in EVs.
Fisker is a newcomer to the market, and it's starting with a unique business model. The company isn't manufacturing vehicles or even servicing them; it's a designer and branding company, leaving other parts of the value chain to more-established partners. Its Ocean EV is expected to launch in 2022. If it's successful, this could be a great bet on EVs without the hassle of a company spending billions of dollars to build its own EV factories.
How a trillion-dollar investment gets financed
Whether we're talking about growth in solar energy, expanding hydrogen infrastructure, or EVs and EV charging, there's a lot of money that needs to be invested to get the Green New Deal off the ground. That's where financing companies like Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI) and Brookfield Renewable Partners (NYSE:BEP) can generate value.
Both companies finance clean energy assets primarily through long-term contracted agreements. Sometimes that's with homeowners who agree to pay for electricity from the solar panels on their roof over 20 years, and sometimes it's rent on the land under a wind farm. But they're focused on predictable, long-term cash flows.
Hannon Armstrong is the more diverse of the two companies, financing everything from energy efficiency projects to large solar farms. The company doesn't pay the biggest dividend, with a yield of just 2.2%, but it's extremely flexible in finding the best opportunities in clean energy and will grow quickly as the industry expands.
Brookfield Renewable Partners has a higher yield at 2.8% and has traditionally grown primarily through organic development and acquisitions. It's used stock to acquire competitors in the last few years, but remains one of the most financially disciplined companies in the industry. And with a growing number of wind and solar projects with long-term contracts to sell electricity to utilities, this is as stable a renewable energy company as there is today.
Riding the clean energy wave
Whether the Green New Deal passes or not, there's likely to be a more friendly policy environment for these companies under the Biden Administration, and that should provide fuel for solar, hydrogen, and EV investment. Getting those winds behind you could be a great move for the next decade or more.