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Renewable energy is the future, but which shares should I buy?

Rising demand is pushing the renewable energy shares to new highs, but which shares will become industry leaders?

by | Last updated 27 Nov, 2022 | Get financial insights

renewable energy technology investment opportunities

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Key Points

  • NextEra owns America’s largest electric utility that provides to more than 12 million people in Florida.
  • First Solar is now solely focusing on solar panel manufacturing.
  • The solar industry is facing a huge threat of 78 million tonnes of waste by the year 2050.

Renewable energy shares are getting a lot of investor attention today. With global warming becoming an ever more present threat, the demand for green energy solutions is on the rise from both governments and consumers.

There are multiple sources of low-to-zero emitting electricity. The list includes:

And with a wide choice of options, plenty of companies are pursuing technological innovations to capture each and every one. I think it’s fair to say that renewable energy is the future, but which shares should I buy today for my portfolio to capitalise on this opportunity?

NextEra: A worthwhile renewable energy share?

NextEra Energy (NYSE:NEE) is an electric power and energy infrastructure company based in North America. The company owns America’s largest electric utility that provides clean, affordable and reliable electricity to more than 12 million people in Florida.

2022 brought a drop in several renewable energy shares. After recognising a loss of 20% year-to-date, the shares of NextEra now trade at around $71. Despite the drop in share price, dividends are still flowing. In fact, in its recent quarterly earnings report, the company reported a payout of $0.425 per share. This marks an increase of approximately 9% from the previous quarter.

On the other hand, the company’s high debt levels make an investment in these renewable energy shares very risky, especially with interest rates now on the rise. With more interest pressure being applied to margins, the bottom line could be about to get squeezed, potentially compromising the dividend in the process.

This isn’t an uncommon situation for renewable energy shares. With such high-cost barriers to entry, relying on debt financing is effectively a prerequisite in my experience. But so far, management seems to have been able to handle things well. And with a consistent track record, I believe, over the long term, NextEra could score a leading position within the industry. That’s why I’m considering it for my portfolio.

First Solar: A rising renewable energy share?

First Solar (NASDAQ:FSLR) is a leading global provider of comprehensive PV solar energy solutions. The company’s differentiated technology of advanced thin-film semiconductor module technology, coupled with its recently shifted focus on solely being a solar panel manufacturer, makes it an excellent renewable energy share to invest in now, in my opinion.

The company is already progressing towards growth in line with the focus on solar panel manufacturing. Towards the end of 2021, management announced two major manufacturing expansions. As a result of these new investments, the solar manufacturer will double its capacity to produce panels within the US and India.

What makes this renewable energy share my preferred choice is its sustainable approach to operations. First Solar’s module technology has the smallest carbon footprint, fastest energy payback time, and lowest water use of any solar technology within the industry. Moreover, the company’s strong balance sheet with limited debt and high cash holdings, as of 31 Dec 2021, makes it a financially sound business, I believe.

But it’s not perfect. The solar panel industry is facing a huge threat. As per Harvard Business Review, the solar industry is expected to generate large amounts of annual waste by the early 2030s. This could total 78 million tonnes by 2050.  If this issue is not catered to soon, it will have damaging effects on all companies within the industry. For example, governments and consumers may begin to turn to alternative green energy solutions as this problem becomes better known.

Currently trading at $73, the company’s share has picked up a bearish trend since the start of 2022. But given the long-term opportunity, this recent dip looks like an excellent buying opportunity for my portfolio.

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Learn more about renewable energy shares

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

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Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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