Money is flooding into green energy assets around the world. It’s easy to understand why. The renewables energy market in the UK alone is expected to grow at a compound annual growth rate of more than 9% between 2021 and 2026.
From a current output of around 47GW per annum, output could hit 86.21GW by 2026, according to current forecasts. Investors have many options when it comes to picking renewable energy stocks to buy. Here are two FTSE 100 companies I would add to my portfolio today to play the boom.
Renewable energy stocks to buy
There are two primary ways I could invest in the growth of the renewable energy market. These are either buying companies that generate green electricity, or investing in businesses that help develop the technology and equipment to produce more energy and make processes more efficient.
In the latter category, Johnson Matthey (LSE: JMAT) has decades of experience in the chemicals industry and can trace its history back to the 1890s.
However today, the company is focusing on the development of technologies to help store and develop renewable energy. It’s currently constructing a new factory in Poland to manufacture components for electric vehicle batteries. At the beginning of January, the organisation announced this facility would be supplied with 100% renewable energy.
Moreover, Johnson Matthey is developing technology for producing green hydrogen. Producing hydrogen can be incredibly energy inefficient. Creating green hydrogen with 100% renewable energy at a reasonable cost is one of the significant challenges facing scientists. If a company can crack the code, the rewards could be tremendous.
These are just some of the reasons why I think this is one of the best renewable energy stocks in the FTSE 100 to buy today. Considering its potential, I’d acquire the stock for my portfolio.
Unfortunately, there’s no guarantee either of these initiatives will produce significant returns for the firm. Developing new technology can be incredibly costly. If it doesn’t work out, Johnson Matthey may end up incurring substantial losses. This could hold back growth in the long term. These are the biggest challenges facing the enterprise right now.
In addition to Johnson Matthey, I’d also buy utility business SSE (LSE: SSE). This is a producer of renewable energy. Management is planning a significant increase in renewable energy production over the next few years. The group wants to triple renewable energy investment by 2030. So, it’s building some of the world’s largest offshore wind farms.
The premiere reason why I believe SSE is one of the best renewable energy stocks to buy in the FTSE 100 is its dividend potential.
Many companies in the green energy sector don’t offer much in the way of income. That’s not the case with SSE. At the time of writing, the stock yields 5.4%.
Unfortunately, this level of income isn’t guaranteed. Considering the company’s spending plans, I think it’s on shaky ground. A significant increase in spending, or cost overruns, could reduce group profitability, limiting the amount of cash available for investors.
Even after taking this risk into account, I’d buy the FTSE 100 company for my portfolio of renewable energy stocks.
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Clearly, this company’s founder and CEO agrees.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.