Governments worldwide are pushing towards net zero emissions by 2050, creating a very favourable environment for renewable energy stocks.

Here in the UK, coal power plants are set to shut down permanently by 2025. And wind power infrastructure is being set up to take its place. By 2030, every home in Great Britain will be powered by renewables. This is quite an ambitious overhaul for the energy sector. But it’s opened up several long-term opportunities for my income portfolio.

A renewable energy stock turning wind into cash

Today, around 26% of electricity generated each year in the UK comes from renewables. And 10% of this comes from Wind farms. Needless to say, these figures need to increase considerably to achieve the current goal.

That’s why Greencoat UK Wind (LSE:UKW) looks quite enticing to me. The renewable energy stock operates wind farms around the country and sells clean energy directly to the national grid.

As wind turbines don’t require a lot of maintenance, the business’s operating costs are almost negligible. As such, it has an 81% underlying profit margin. And since the business is registered as a real estate investment trust, 90% of its net income is returned to shareholders through dividends. Which, based on today’s stock price, is yielding around 5.4%.

However, the company does have some risks. Because it retains only a small portion of earnings, the management team constantly has to rely on debt financing to expand its portfolio of assets. This additional leverage adds some solvency risks.

It’s also worth noting that the UK energy sector is heavily regulated. To ensure the affordability of electricity, there are price caps placed on how much energy companies can charge their customers per unit. These restrictions are indirectly passed onto Greencoat and could squeeze its margins.

Solving the unreliability of the weather

One of the biggest limitations of wind power is its dependence on the weather. While the UK is quite a breezy country, the wind isn’t always blowing. This presents a significant problem. After all, if UK homes are going to be reliant on wind power, there can’t be any disruptions to the electrical supply.

But Gore Street Energy Storage Fund (LSE:GSF) has found a solution. This renewable energy stock provides electrical storage facilities that can provide power to the national grid when turbines aren’t working. 

Excess electricity generated by wind farms and other renewable energy technologies is redirected into Gore Street’s facilities, where it is stored in high capacity batteries.

This market space is still in its infancy. And so, there are bound to be unforeseen challenges and risks in the future. But if the UK intends to transition into renewables, I believe this company’s services will be essential. 

However, there is one risk that concerns me. The management team is diversifying its portfolio of battery technology. But as it stands, it is heavily reliant on a single manufacturer. If this relationship were to turn sour, it could cause some significant operational disruptions.

The bottom line

I think it’s unlikely that these renewable energy stocks will achieve explosive growth in the short term. But over the long term, I believe the potential for these businesses is enormous. And so, I’m definitely considering them for my income portfolio.

But I did also find a high-growth stock this week. Here is my…