I believe one of the most promising sectors to invest in right now is the renewable energy industry. Money is flooding into this sector, and I think this trend is here to stay.
As the world moves away from polluting hydrocarbon energy towards renewable energy sources such as wind and solar, trillions of dollars will be needed to fund this transition.
When it comes to looking for renewable energy stocks to buy, I think investors are spoilt for choice. There are plenty of options on the London market. And the number of companies with exposure to the industry is expanding every day.
With that in mind, here are three renewable energy stocks I would be happy to buy for my portfolio to hold until 2030. I believe each one of these companies has a long runway for growth over the next few years and plenty of funding to pursue their initiatives.
Renewable energy champion
I do not think any article on renewable energy would be complete without mentioning SSE (LSE: SSE). In my opinion, this is one of the most attractive opportunities in the UK green energy sector.
The corporation, which used to be one of the UK’s leading retail utility suppliers, is investing heavily in green energy initiatives. Its position in the market as one of the prominent power companies in the UK gives it a unique edge over peers.
SSE generates power and helps transmit it to consumers. Most other green energy companies only generate electricity. This means they are reliant on other businesses to distribute and sell power.
This position in the market also suggests SSE will have the resources and wherewithal to meet its renewable energy ambitions over the next few years.
SSE plans to increase its capital expenditure from £7.5nb to £12.5bn over the next five years to fund its renewable transition. It aims to run a quarter of the UK’s wind farms by 2030. It also has overseas ambitions.
Towards the end of last year, the company highlighted the acquisition of an 80% interest in an offshore wind farm development in Japan as a sign of its international expansion plans.
However, to help fund growth, the corporation is cutting its dividend. While this is disappointing for income investors, I think it is the right decision in the long run. With more capital available to invest in green energy initiatives, the group seems primed for expansion in the years ahead.
But I do not think it would be sensible to take SSE’s growth for granted. Problems it could encounter include higher than expected costs in developing its projects and overcapacity. As other providers rush to increase renewable energy output, this could create a glut of wind and solar power. SSE may have to write off some of its investments in this scenario.
Talking of wind energy, I would also acquire the wind farm owner and operator Greencoat UK Wind (LSE: UKW). There are two reasons why I think this company will be a good investment over the next decade.
First of all, it is the largest wind farm owner and operator listed on the London market. This gives it a robust competitive advantage because it will be easier for the enterprise to attract funding from investors.
Historically, Greencoat has leaned heavily on investors to provide capital to fund its wind farm projects. Considering the organisation’s reputation and the general clamour for renewable energy investments, I think this trend will continue.
Not all companies may be so lucky. Smaller businesses may struggle to attract capital if interest rates rise significantly, and investors look to achieve better returns elsewhere.
The second reason I think this business will be a good investment over the next decade is its track record of returning cash to investors. The group set out with a goal to return a significant amount of cash to investors every year via dividends. It has become a reliable income stock since and, at the time of writing, the shares offer a dividend yield of 5%.
Of course, this distribution is not guaranteed. If the company suffers a sudden drop in income, it could have to cut the payout. Management may also have to revisit the level of the dividend if the business wants to reinvest more. Investors may not always be willing to provide as much capital as they have in the past.
The final renewable energy stock I would buy for the next decade is a speculative investment. Ceres Power (LSE: CWR) is one of a handful of companies on the London market exploring and developing hydrogen technology.
The business has achieved substantial progress over the past couple of years. According to its latest trading update, revenue in the 12 months to the end of December increased 44% year-on-year.
The enterprise has also agreed on significant partnerships with several global manufacturers including, Bosch, Weichai, and Doosan. These partners are planning new product releases over the next couple of years, which could significantly add to Ceres Power’s growth potential.
With £250m of cash on the balance sheet, the company has the financial resources to push ahead with product development and its partnerships over the next few years.
Long-term renewable energy investment
Still, there is no doubt in my mind that this is a long-term investment. Over the next 10 years, the company should make significant strides in the commercialisation of its technology, although it will take several years for new products to emerge on the market.
In the meantime, there is plenty that could go wrong. The corporation has an abundance of cash today, but that could change if it makes a strategic misstep. There are also plenty of competitors in the hydrogen space trying to develop similar products. As such, there is no guarantee Ceres Power’s products will be able to capture market share.
These are the reasons why I would only acquire the company as a speculative long-term investment.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.