For more than a decade, the world has watched renewable energy sources, namely solar and wind, break out at an exponential pace.
Over the last two decades, global cumulative photovoltaics capacity has massively expanded, from less than a couple of gigawatts (GW) to more than 500. Wind power has followed a similar trend, with global capacity climbing from low double digits to nearly 600 GW.
Add in the growth of hydropower, bioenergy, and geothermal, and you begin to see a stunning new trend. According to the International Renewable Energy Agency (IRENA), renewable energy sources now add up to one-third (2,351 GW) of global power capacity.
At this rate, it’s safe to assume that the future of energy is in renewables. This full transition, of course, will not happen overnight, but it is happening, and it’s happening as you read this right now.
If you’re a profit-minded investor, this should make your eyes widen and your ears perk up. After all, who wouldn’t want exposure to one of the most explosive growth markets of our time?
Rising But Volatile
Now, there are obviously a ton of different ways you can go about investing in renewable energy. Many have placed wagers on wind and solar over the years to varying degrees of success.
Speculators were notoriously burned by solar companies like Solyndra following its bankruptcy or by SunPower Corp. (NASDAQ: SPWR) and First Solar (NASDAQ: FSLR) in the wake of the 2008 crash.
Despite the massive growth in renewables, betting on individual manufacturers can be a tough game because you’re often operating in a cutthroat environment. American solar panel manufacturers in particular have faced intense competition abroad, where low production costs have put pressure on margins back at home.
Over the last decade, you’d be surprisingly hard-pressed to find many winning renewable energy producers, aside from the likes of NextEra Energy (NYSE: NEE), which, for what it’s worth, is an absolute monster of a stock.
Most of the big names in renewable energy — Vivint Solar (NYSE: VSLR), First Solar, SunPower, TerraForm Power, Inc. (NASDAQ: TERP), and Pattern Energy Group (NASDAQ: PEGI) — are ALL losers dating back to 2014.
The iShares Global Clean Energy ETF (NASDAQ: ICLN) has been abysmal, shedding over 50% of its value since 2010. The Invesco Solar ETF (NYSE American: TAN) has also performed disgustingly, down roughly 70% in the same time frame.
As far as production goes, renewable energy has so far proved a winner-take-all market. At least, there have only been a few winning stocks over the last decade.
So how, then, can investors gain exposure to the massive growth in renewables without all the losers dragging them down?
Well, one way is to pick and stick with the obvious winners — companies like NextEra Energy that are sporting beefy double-digit profit margins and dishing out respectable dividends to boot.
The other way is to sidestep these energy producers entirely (or to complement the winners) and invest in what all of them are creating demand for in the first place. I’m talking, of course, about massive amounts of energy storage.
Forget Renewable Production: Start Betting on Storage
You could spend all day debating where the future of renewable energy really is going to come from, whether it be hydro, solar, wind, or geothermal…
But where the rubber meets the road, all of these energy sources have one thing in common: you need a place to store it.
Unlike fossil fuels, which are a form of energy that can be used to power machines like cars and boats directly, renewable energy sources are typically harnessed and then stored in batteries for later use.
This dynamic, unsurprisingly, is sparking major demand for energy storage solutions. To put it simply, the expected growth of this market is just insane:
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Wood Mackenzie Power & Renewables projects a THIRTEEN-FOLD increase in grid-scale storage between 2018 and 2024. That equates to $71 billion in investment over a six-year period.
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Mordor Intelligence projects a compound annual growth rate (CAGR) of 19.8% between 2019 and 2024.
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BloombergNEF believes energy storage is a $620 billion investment opportunity over the next two decades (122-fold growth from 2018).
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Global Market Insights expects the energy storage systems market to reach $500 billion by 2025.
Needless to explain any further, the power storage (batteries) market is going to be a truly massive opportunity for investors and one of the most surefire ways to bet on the renewable energy boom.
Below are our top three stock picks for batteries and energy storage for 2020.
Battery and Power Storage Stock #1: Albemarle Corp. (NYSE: ALB)
Albemarle Corp. is what you could consider the epitome of a picks-and-shovels play on batteries and power storage, as the company produces a core component of today’s staple energy storage technology.
Headquartered in Charlotte, North Carolina, Albemarle is the world’s largest lithium producer, placing it squarely at the heart of robust lithium demand, namely for electric vehicles and home power units.
Albemarle produces lithium from its salt brine deposits in Chile and the U.S. and its hard rock joint venture mines in Australia. Albemarle is also a global leader in the production of bromine, used in flame retardants, and oil refining catalysts.
Albemarle’s revenue segments are well diversified, earning 36% from lithium, 29% from bromine, and 31% from refinery catalysts.
The company offers a dividend of roughly 2.1% and has posted single- to low-double-digit revenue growth every quarter since the start of 2017.
Barring a major shift to alternative materials, Albemarle should be considered a staple of any portfolio looking to gain exposure to rising battery demand.
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Battery and Power Storage Stock #2: SolarEdge Technologies, Inc. (NASDAQ: SEDG)
This one isn’t exactly a pure play on energy storage, but SolarEdge is a stock that’s worth a mention regardless of its revenue breakdown.
The company makes a range of products relating to solar power, namely power optimizers and solar inverters — basically anything that makes pulling power from solar panels more efficient. It was formed in 2006 by Guy Sella and is headquartered in Herzliya, Israel.
Most of the company’s revenue does not come from storage at this point, but SolarEdge’s battery technology stands out as industry leading. The company makes a backup power product called the StorEdge Inverter for when the grid goes down.
Similar to Tesla’s Powerwall, the StorEdge Inverter is meant to provide backup power to households powered by solar. Where the StorEdge stands out, though, is that it is not just a battery but also a solar inverter.
This means it converts the variable direct current (DC) output of solar panels into common household utility frequency (AC). Every home powered by solar requires an inverter at some point or another.
Now, Tesla’s Powerwall comes with a built-in inverter as an option, too, but SolarEdge’s inverter is standard.
More importantly, SolarEdge actually has a sustained five-year history of (rising) profitability. It’s a better stock to own than Tesla in the niche but explosive market of integrated, residential solar solutions.
Battery and Power Storage Stock #3: Enphase Energy (NASDAQ: ENPH)
Enphase Energy delivers energy management technology for the solar industry, with a fully integrated solution.
The company offers microinverters, AC home battery storage, smart solar monitoring technology, and integrated AC solar modules. Most interestingly, Enphase gives its customers web and phone applications that allow them to track overall energy and per-panel energy production data with an easy-to-use interface.
By allowing customers to monitor their system’s health, Enphase is set up for easy follow-up maintenance. It also lets users know exactly how much energy is left in their backup storage at any given moment.
Enphase also sidesteps the pitfalls of scaling solar installation nationally through a network of local third-party installers. It assigns these installers “badges,” which essentially grade their experience.
Enphase is currently targeting residential and commercial markets in the United States, Canada, Mexico, United Kingdom, France, Australia, New Zealand, and select Asian regions.
Enphase is effectively a high-end solar solution for tech-minded consumers. It combines the smart home with solar for a compelling long-term outlook.
Until next time, Jason Stutman
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