The cost of renewable energy is now so low in most of the world that it's the logical choice for most electricity generation power plants being built today. And in some cases, it's directly replacing coal, nuclear, and even natural gas power plants that are more expensive.
As this energy transition takes place and renewable energy takes up more of the grid there are some renewable energy stocks that will perform well for investors. Three of our contributors think Bloom Energy (BE 3.75%), Brookfield Renewable Partners (BEP 2.09%), and Berkshire Hathaway (BRK.A -0.40%) (BRK.B -0.18%) are the top stocks of the industry.
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Building a hydrogen future
Travis Hoium (Bloom Energy): It's true that renewable energy costs are coming down so fast that they'll make up a majority of electricity produced on the grid eventually. But one solution that hasn't been fully solved is how sunlight will be used at night or how wind energy will be used when it's not windy. Batteries are a fix for short bursts of energy needs, but a longer-duration solution is needed. That's where Bloom Energy comes in.
Bloom Energy makes fuel cells that turn natural gas or hydrogen into electricity. But its future is in hydrogen fuel cells and electrolyzers, devices that turn electricity and water into hydrogen. The cost of renewable energy is now low enough that this process of turning electricity into hydrogen, storing it, and then turning it back into electricity is becoming economical to the grid. And that opens up a multi-trillion dollar market for Bloom Energy.
There's a long way to go in building the business out and renewable energy costs have only recently made hydrogen energy storage compelling. But as the grid adds more renewable energy we will see a need for cost-effective long-term storage that hydrogen can provide. Bloom Energy has the chance to be one of the most revolutionary companies on the grid a decade from now.
Offering a recent discount
Howard Smith (Brookfield Renewable Partners): Many companies have been building investments in solar and wind power generation as energy grids transition to using more renewables. Investors have already taken notice, making companies like Brookfield Renewable Partners that own and operate global renewable generating capacity worth more than $10 billion.
The company just reported record results for 2020, and is looking forward to "a multi-decade opportunity to advance decarbonization and assist with the transition of global electricity grids to a more sustainable future," CEO Connor Teskey said in a statement. A recent rotation in the stock market away from alternative energy has given investors a 10% discount in the company compared to where it began 2021, and 20% off January highs.
Brookfield's portfolio contains over 5,300 power-generating facilities consisting of hydroelectric, solar, and wind power. Management is confident that it will continue to deliver 12% to 15% long-term returns based on its growth initiatives. That growth includes one of the largest onshore wind projects in the U.S. in an 845 megawatt (MW) wind generation facility in Oregon the company acquired in December 2020. Brookfield plans to pursue the potential to increase generating capacity there by approximately 25%.
Hydroelectric power is currently the largest segment, but the wind and solar segments grew their contribution to funds from operations (FFO) by 51% year over year in 2020. And there are likely to be more opportunities to grow its wind and solar assets. In January, President Joe Biden signed an executive order aiming to double offshore wind generating capacity by 2030. While that still would come off a low base, it is symbolic of the current administration's aims to grow renewable capacity.
Brookfield Renewable is also broadening its reach with an agreement to supply 100% renewable energy to supply Plug Power's (PLUG 5.82%) first industrial-scale green hydrogen project. Brookfield has a solid base established and is in a good position as the energy grid transitions to more renewable generation. The recent dip in the stock price gives investors a good opportunity to buy in.
Planting a tree
Jason Hall (Berkshire Hathaway): One of my favorite Warren Buffett quotes is, "Someone is sitting in the shade today because someone planted a tree a long time ago." And at 90 years of age, Warren Buffett continues to "plant trees" for Berkshire's future. One of Berkshire's biggest subsidiaries, Berkshire Hathaway Energy, is in the midst of a single project that will take almost a quarter century to complete and is almost entirely tied to the growth of renewable energy production. From Buffett's recent shareholder letter:
Let me tell you about one of BHE's endeavors -- its $18 billion commitment to rework and expand a substantial portion of the outdated grid that now transmits electricity throughout the West. BHE began this project in 2006 and expects it to be completed by 2030 -- yes, 2030.
The advent of renewable energy made our project a societal necessity.
Berkshire sees the need -- and the opportunity -- as being so significant that it receives zero dividends from BHE, and never has in more than two decades of ownership.
Buffett clearly sees the benefits to humanity, calling this a "societal necessity." However, there's also a massive financial incentive: BHE is located in the best locations in North America for both wind and solar farms, so building out the transmission grid to get the future electricity to the coastal population centers where demand is highest should pay off with huge profits in the future.
Investors might want to follow Buffett's lead and invest in Berkshire. The company repurchased $25 billion in shares last year, indicating that Buffett sees it -- along with renewables -- as worth investing in.
Riding the winds of renewable energy
All three of these companies play a critical role in the deployment of renewable energy across the U.S. and the world. And the industry's tailwinds will help propel them to new heights if investors just hold on for the ride.
