Renewable energy has been the fastest growing energy source in recent years. It has given us a new kind of energy sector – one that’s participating in the transition to clean energy. In fact, forecasts are calling for a 60% increase in global renewable electricity capacity between the years 2020 to 2026. Clearly, there are a lot of opportunities for the taking.
Here are two renewable powerhouses that are set to benefit from these opportunities.
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Enbridge: A new energy sector and an emerging renewables stock
Some of you might be surprised to see Enbridge Inc. (TSX:ENB) on my list of renewable companies. Well, the truth is that along with being a leading oil and gas infrastructure company, Enbridge is also one of the largest renewables companies in Canada.
In fact, Enbridge has 23 wind farms (4,870 megawatts (MW) of capacity) that are either in operation, pre-construction, or under construction. It also has 16 solar energy operations (254 MW of capacity), five waste heat recovery facilities, one geothermal project, and one power transmission project. Together, these sources can meet the electricity needs of 966,000 homes.
Yet, I understand why most of us don’t think of Enbridge stock when we think of renewable companies. I mean, its renewables business accounted for a mere 3.1% of its total EBITDA for the first quarter of 2023. But this does not diminish Enbridge’s presence in the renewables business. In contrast, I think that the company is in a really sweet spot, benefitting from both the “old” fossil fuels business, while also capitalizing on the new energy business of the future, renewables.
So, the future looks bright for Enbridge stock. Instead of being a company without a long-term, lasting business, Enbridge is investing heavily in the renewables business. In my view, the company will be able to leverage its infrastructure, asset base, and operational know-how to create the same kind of high return business on the renewables side as it has on its fossil fuels business.
Northland Power: A stock with a strong history
Northland Power Inc. (TSX:NPI) has produced electricity from clean-burning natural gas and renewable resources for 35 years. The company has clean-burning natural gas, wind, and solar assets in places such as Asia, Europe, and North America.
In the last five years, Northland had been humming along nicely. In fact, its operating cash flow increased at a compound annual growth rate (CAGR) of 13.6%, as revenue increased 57% or at a CAGR of 9.5%. Then in 2023, things took a shift for the worse as power prices fell from their 2022 highs, inflation escalated, and interest rates rose.
Yet, Northland remains a growth company within the energy sector. This is because the renewables business is a growth business with a strong long-term outlook. As such, the company expects 2023 EBITDA to come in at $1.2 billion to $1.3 billion. This represents a 5.3% to 14% growth rate versus 2021 levels. It’s the kind of steady growth that we have come to expect from Northland Power.
However, there won’t necessarily be a clear path ahead for Northland, as inflation and a high debt load pose challenges for the company. But given its strong track record, 4.25% yield, and attractive valuation of under 20 times next year’s estimated earnings, I think that Northland Power stock is looking good.
