Analysts pick their top renewable energy stocks as demand surges

Published Sun, Aug 8 202111:00 PM EDT

As more countries look to reduce their reliance on fossil fuels, the demand for renewables is surging. Two analysts share their top renewable energy stock picks to cash in on the trend. Global electricity generation from renewables is expected to grow by 8% this year and over 6% in 2022, according to the International Energy Agency (IEA). However, the agency expects renewables to fall short of demand, meeting only half of the expected growth in global demand this year and next. This is creating an investment trend with renewables at its heart, according to Pearce Hammond, managing director of equity research at investment bank Piper Sandler & Co. Meanwhile, Julien Dumoulin-Smith, head of U.S. power, utilities and clean energy research at BofA Securities, said: "The (renewable energy) train has left the station." This transition to cleaner energy, he said, "is well underway and will accelerate." Here are some of their top stocks picks in the sector: Generac The U.S.-based backup power generation equipment manufacturer, Generac , whose stock is up by more than 78% year-to-date, is a pick for Hammond. It has benefited from power outages in Texas and power shutoffs in California, he said, but also has a renewable energy push. Hammond highlighted the expectation of a less stable grid going forward and argued that customer demand for more energy stability makes this stock attractive. He is overweight the stock. SunRun and Sunnova Energy Grid concerns also played into Dumoulin-Smith's reason for picking these two residential solar panel providers, SunRun and Sunnova Energy . As a patchier grid looks more likely on the back of extreme weather events, many consumers will want to have their own energy sources which they can potentially resell to the national grid, Dumoulin-Smith highlighted. "Consumers want reliability, people want to be in the grid," he added. Ameresco Hammond also picked Ameresco , a renewable energy equipment and services firm that is up by about 21% this year. Hammond likes that the company offers universities and others the chance to improve their buildings' energy efficiency and then split the savings that come from lower energy consumption. NextEra Energy Partners Both Hammond and Dumoulin-Smith picked NextEra Energy Partners , which is up about 20% so far this year. The firm said last month it expects a run rate for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) at the end of the year in the "upper end" of between $1.44 billion and $1.62 billion. Hammond said the stock provided investors with "lower risk" when gaining exposure to renewables. Dumoulin-Smith also liked the stock for being a leader in its sector. NiSource Inc. Dumoulin-Smith said Indiana's utilities firm NiSource was one of the biggest success stories in the sector. He described earnings as above expectations and said they could accelerate further. The company said last week that it was expecting to make capital investments of around $10 billion through 2024, with an additional $2 billion for renewable energy generation. Entergy Corp. Another of Dumoulin-Smith's picks is Entergy , which provides energy to households in southern U.S. states. Its moves in sunnier parts of the U.S., where authorities have recognized the need to update their sources of energy, is a plus for the analyst. In fact, the firm said on Thursday that the Arkansas Public Services Commission had approved its plan for a new 100-megawatt solar powered generation station in Lee County, Florida. Renewables sector as a whole JPMorgan Chase said in a recent note that it had turned positive on the global alternative energy sector, given a number of catalysts slated for the second half of this year that could drive the stocks higher. These included easing raw material tightness, the Biden infrastructure plan, and the UN Climate Change Conference of the Parties (COP26) in the fall. However, despite politicians and business leaders touting their commitment to the so-called energy transition, fossil fuel use is rising and the U.S. Energy Information Administration expects carbon emissions from energy-related sources to grow. — CNBC's Pippa Stevens contributed to this report

An aerial image shows vehicles driving on the California 14 Highway as solar panels, part of an electricity generation plant, stand on June 18, 2021 in Kern County near Mojave, California.

Patrick T. Fallon | AFP | Getty Images

As more countries look to reduce their reliance on fossil fuels, the demand for renewables is surging. Two analysts share their top renewable energy stock picks to cash in on the trend.