The Strategist

Four ways to invest in alternative energy

08/23/2017 - 15:23

Despite the explosive growth in investments in alternative energy in recent years, it is not too late to buy shares of "green" energy companies. Here are four prospective contenders for a place in the portfolio of a long-term investor.

First Solar

First Solar is leading the solar panels production. The market mostly offers solar panels based on crystalline silicon, but First Solar’s thin-film devices use cadmium telluride. The company was established in 1999 and as has already managed to prove its viability - the company is consistently profitable. In 2016, First Solar faced some difficulties, including drop in average selling prices. As a result, the company’s annual report showed a loss. However, its management expects a comeback to profitability in 2017, focusing on profits of $ 1.55 to $ 2.20 dollars per share. A good balance ($ 1.5 bln in highly liquid assets, as well as $ 321 million in debt for the second quarter of 2017) may help the company sustain future market jumps.

General Electrics

General Electrics is more known as a manufacturer of various devices, yet the company has made significant progress in the field of wind energy. According to Bloomberg New Energy Finance, in 2016 GE was the second largest producer of wind turbines in the world. To strengthen its stance as the industry leader, the firm has recently acquired LM Wind Power, a large wind turbine manufacturers. However, GE is not only engaged in the production of turbines. According to the company, its solution Digital Wind Farm, running on the Predix platform, is able to increase the level of wind power generation by 20%. In addition, Current, one of GE’s projects, which deals with the IoT successfully solves problems in the field of alternative energy. In the second quarter of 2017, the company reported that the lighting unit and Current accounted for $ 13 million in operating profit, and the number is likely to grow. According to Accenture's forecast, by 2030 the world market of industrial IoT could reach $ 14.2 trillion.

Vestas Wind Systems

Investors interested in wind energy should also take a closer look at Vestas Wind Systems. According to BNEF, in 2016 Vestas became the largest producer of wind turbines. The firm has long and successfully earned on the growth of the popularity of wind energy. Rarely you can see such an explosive growth of revenue and profitability in this industry, so Vestas’ achievements certainly deserve recognition. To increase the shareholder value, the firm intends to buy back shares worth about 600 mln euros by the end of the year. The amount of similar redemption in the first quarter of the year amounted to 100 mln euros. At the same time, the company does not refuse to pay dividends, allocating approximately 25-30 percent of net profit to investors.

Ormat Technologies 

In addition to wind and solar energy, there is another promising direction for "clean" energy. Ormat Technologies, which calls itself the only geothermal company that is integrated vertically, has been offering its solutions for over 50 years. The firm owns and manages assets with a total capacity of 727 MW in 5 countries on 3 continents. The company's annual revenue has been growing since 2010. If the management's plans are justified, 2017 will not be an exception. According to the forecast, revenue growth should reach about 4%. The company also reported stable growth of EBITDA. In fact, Ormat’s adjusted EBITDA increased by 73% from the fiscal years of 2012 to 2016. If the company justifies management's forecasts in 2017, annual growth will be about 6.5 percent, and there is every reason to believe that this is only the beginning. In a report for the second quarter of 2017, Ormat cites a study showing that the potential total capacity of geothermal energy sources can grow by almost 10 times - to 13.8 GW.

Is alternative energy worth investing? 

In recent years, the energy market has changed a lot. Long gone are the days when investors who are choosing projects in the field of alternative energy seem queer. Now, someone who still avoids "clean" energy can soon become an oddball.

The role of renewable energy sources in the world energy sector will continue to grow, which will allow long-term investors to benefit from the advantages of industry leaders, such as companies listed in this review.