Oil prices have gotten volatile again, with prices swinging over 20% in the last three months. And there may be more volatility ahead as the economy sets to bounce back and oil producers struggle to turn on supply as quickly as needed. The problem is, we don't know if oil is going to go higher or lower from here.
If you're worried about oil volatility and want some more predictable energy investments, renewable energy stocks can give exposure to the energy industry without some of the ups and downs. And three of our Fool.com contributors think SunPower (SPWR -1.02%), Equinor (EQNR -0.07%), and Clean Energy Fuels (CLNE -0.87%) are all great ways to invest in renewable energy today.
Image source: Getty Images.
Eliminate volatility with solar energy
Travis Hoium (SunPower): If you're worried about the uncertainty gas prices bring at the pump, rooftop solar can bring certainty to your energy costs. SunPower is offering leases and loans for solar panels that provide certainty for electricity prices for homes, businesses, and electric vehicles for decades. And with energy storage becoming a larger piece of the company's business it will be providing even more energy services to customers.
Solar installations are often financed with long-term loans or what's known as a power purchase agreement, where a customer agrees to pay a certain amount for the electricity from a solar installation over 20 or 30 years. That provides certainty in costs for homeowners and businesses. This is important in transportation because of the growth in electric vehicle sales around the world. If customers can now charge their vehicle with electricity created on-site for a predictable cost it not only reduces volatility, but also saves them money.
SunPower has spent a decade adapting to the market in solar energy, but it now seems to have found an area where it can add value long-term by being a solutions provider to installers and building the technology backbone behind energy storage and the smart home. Management expects revenue to grow 35% in 2021 and EBITDA is expected to triple in 2021 and grow 40% in 2022. If that starts a trend of growth and improved profitability, this could be a renewable energy stock that beats the market for the next decade.
Transitioning big energy
Howard Smith (Equinor): Oil and gas prices have traditionally had significant impacts on stocks of integrated oil companies as well as downstream refiners. But investors in big energy can still have exposure to that sector while lowering the effects of volatile fossil fuel commodity prices. One company that is diversifying broadly into renewable energy is Norway-based global energy company Equinor.
Like all international energy companies, Equinor was significantly impacted by the drop in energy demand due to the pandemic. It reacted quickly, lowering its dividend by 67% in the first quarter of 2020. But it also has continued its plans for investing in renewables. Last year, the company said it expects to grow its installed renewables generation capacity tenfold by 2026, and 30 times by 2035.
The Hywind Tampen offshore wind farm in the Norwegian North Sea will be the world's first floating wind farm supplying renewable power to offshore oil and gas installations. Image source: Equinor.
Equinor plans to grow its renewables portfolio profitably, too. It has so far invested about $3 billion for what it says is a 10% internal rate of return (IRR). Its renewable assets currently include solar plants in South America, and, along with partners, it is building a floating wind farm in the Norwegian North Sea to supply oil and gas rigs. The company wants to become an "offshore wind major," it said in a 2020 presentation.
Though it took a significant step to lower the dividend early in the pandemic to shore up its balance sheet, investors should feel good that the company achieved net positive cash flow for the full year of 2020, including $1.4 billion in the fourth quarter. That's good news for investors looking for future income. Equinor brings investors a way to hold big energy with less fossil fuel price exposure.
The transition to the future of transportation is already happening
Jason Hall (Clean Energy Fuels): As much as electrification and hydrogen will play a major role in the future of moving people and goods, natural gas is already playing a large, and growing role. Moreover, methane from human-generated waste is a huge problem that is becoming a solution to reducing the carbon footprint of transportation. And no other company is as well positioned to benefit from that trend than Clean Energy Fuels.
Over the past decade, Clean Energy has deployed hundreds of natural gas refueling stations, aimed not at personal automobiles, but at large commercial fleets, particularly heavy-duty vehicles like garbage trucks, tractor-trailers, buses, and concrete trucks. And it's paid off, with strong growth in operating and free cash flows, which have shifted from negative to solidly -- and increasingly -- positive results:
CLNE Cash from Operations (TTM) data by YCharts
Today, the majority of that cash flow still comes from fossil-fuel-derived natural gas, but the company has shifted a massive amount of its supply to renewable natural gas, which it sells under its "Redeem" brand. Redeem makes up about 40% of the company's transportation fuel volumes, and is growing very quickly.
The bottom line is that while electric trucks and hydrogen will be part of the mix in the future, so will renewable natural gas, and it's the only one that fleets can buy and integrate into their operations right now and count on to meet all their needs. That's a powerful reason to consider Clean Energy Fuels for your portfolio.
The future of energy isn't oil
These three companies are building the future of energy with renewable products. And they're both less volatile and lower-cost than oil, which is a big reason we're excited about these stocks for the long term.
