Solar energy stocks have been blistering sizzling final yr. The Invesco Photo voltaic ETF — an exchange-traded fund that holds 37 solar-focused firms — soared greater than 230% in 2020. Powering that surge was elevated investor enthusiasm within the sector as prices come down and the worldwide economic system pivots towards renewable energy.
Given final yr’s run, it would not be too shocking to see photo voltaic shares cool off in 2021. Nonetheless, the sector has such a brilliant future that traders ought to take a look at sell-offs as potential long-term shopping for alternatives. Topping my record as the very best photo voltaic inventory for 2021 and past — and one I would purchase on an enormous dip — is Brookfield Renewable (NYSE:BEP)(NYSE:BEPC).
Betting huge on photo voltaic vitality
Brookfield Renewable is comparatively new to the photo voltaic sector. It made its first foray in 2017 when it invested in TerraForm Energy and TerraForm World. It has since grown its photo voltaic enterprise to about 9% of its money circulation, with the remaining coming from hydroelectric (64%) and wind energy (27%).
The corporate has been steadily constructing its photo voltaic platform through a sequence of acquisitions. Its latest purchase is the photo voltaic enterprise of utility Exelon (NYSE:EXC). The corporate and its institutional companions are paying $810 million to accumulate 360 megawatts (MW) of distributed photo voltaic (i.e., rooftop and group programs) throughout 600 U.S. websites. Along with that working portfolio, Brookfield will get a pipeline of greater than 700 MW of initiatives beneath improvement.
The working portfolio will present incremental money circulation to assist Brookfield’s present dividend, whereas the event belongings bolster its progress prospects. The acquisition additionally enhances the corporate’s place as one of many largest owner-operators of distributed technology belongings within the U.S. at about 2,000 MW. That elevated scale will allow the corporate to generate more money and better returns from the general portfolio as a result of it may well leverage its measurement to scale back prices.
Excessive-powered progress forward
That transaction builds on Brookfield’s already in depth photo voltaic venture backlog. The corporate had 18.3 gigawatts (GW) of renewable vitality initiatives in improvement, almost as massive as its present 19.4 GW working portfolio. Greater than half of these improvement initiatives are photo voltaic, which is noteworthy given the returns Brookfield expects to earn from these investments.
The corporate identified that one venture — a 1.2 GW improvement in Brazil that it acquired final yr — ought to obtain about 20% returns on its funding. That is spectacular given its measurement as one of many world’s largest photo voltaic improvement initiatives. Brookfield believes it may well produce such strong returns due to its scale, which ought to drive down tools procurement, set up, and working prices for this venture.
That venture is only one instance of what Brookfield sees forward for its photo voltaic enterprise. As a result of the returns are so good due to its rising scale and the quickly declining prices of photo voltaic panels and different elements, Brookfield believes photo voltaic may very well be its largest enterprise throughout the decade.
Whereas the corporate already has a large-scale photo voltaic vitality working portfolio and an intensive improvement pipeline, that seemingly will not cease it from persevering with to increase its photo voltaic enterprise this yr through extra acquisitions. The corporate expects to take a position as much as $1 billion per yr on new investments, with photo voltaic seemingly a key focus space. It has a top-notch stability sheet that provides it the monetary flexibility to pursue extra photo voltaic vitality sector alternatives, together with $3.4 billion of accessible liquidity to make offers. Future photo voltaic acquisitions will most certainly observe the same blueprint to the Exelon deal by coming with a improvement pipeline, permitting it to leverage its scale to reinforce the returns.
Top-of-the-line methods to spend money on photo voltaic vitality
Brookfield Renewable has centered a variety of consideration on constructing out its photo voltaic vitality portfolio over the previous few years. These investments ought to proceed to pay dividends in 2021 and past by offering it with a fast-rising money circulation stream in order that it may well preserve boosting its dividend. That extremely seen upside is why it tops my record as the very best photo voltaic inventory for this yr and people to come back.