While the overall market took it on the chin yesterday, there was one big breakout. No, not oil. Renewables. The renewable sector has formed a long bottom and looks about to break out of its range.
Bigger renewable names like Plug Power (PLUG – NASDAQ), Enphase (ENPH – NASDAQ), and Solar Edge (SEDG – NASDAQ) were all up 10% on the day.
What is driving the move?
While one day doesn’t make a rally, if it holds up, I think we can chalk it up to energy security.
I don’t know where the oil top is. I think these talking heads calling for $200 or $300 oil don’t understand the market. Oil might go higher, but but I don’t think it goes much higher.
But Europe and the United States are learning a painful lesson of being dependent on energy from foreign, unfriendly sources.
It is abundantly clear that we are going to move to energy imdependence. BUT… this doesn’t mean we get a flood of new pipelines and LNG infrastructure or see moves that incentivize oil and gas production.
President Joe Biden laid it out very clearly yesterday.
This crisis will be used as a reason to direct more money to renewables and clean energy sources.
With Democrats in control and with Europe already beholden to green policies, the events of the last few weeks have – in all likelihood – actually shrunk the window to renewable dominance.
We are going to see a mobilization of dollars towards renewables that will dwarf what we’ve seen so far.
This is war. In war governments have the power to enact extraordinary measures that would be balked at during peace times. They can justify deficits and spending that they could not otherwise.
This time, instead of spending on tanks, bombs and guns (though in Europe I am sure there will be plenty of that too), the wartime chest is going to be spent on energy independence.
We are already starting to see the announcements, and this is just two-weeks in. From Reuters:
Germany announced plans to rapidly accelerate solar and wind deployment to reduce reliance on Russian gas and plans to achieve 100% renewables by 2035 (including 200GW of deployed solar), vs 45% renewable demand today and against ~60GW of installed solar in Germany as of December 2021.
Expect more expedited targets, high renewable goals and more dollars allocated.
At the same time, renewable producers are going to be flush with cash. Renewable power plants are the only electricity producers that aren’t seeing cost inflation.
Names like Transalta Renewables (RNW – TSX) and Altius Renewables (ARR – TSX) – both producers of renewable power – have seen their stocks soar.
Energy independence in this new world is not oil or coal and it probably isn’t even natural gas. It is wind, solar, batteries and maybe nuclear but that one I’m still not sure about.
Will it work? For now, it doesn’t matter. As an investor I mean.
All that matters is that dollars are likely going to pour into the sector. Subsidies and grants and freebies and you name it. Just get it done.
That is what I think the market is sniffing out this week
My favourite renewable stock trades at 5o cents a share. They don’t just produce one renewable energy form, they produce THREE–hydrogen, Renewable Natural Gas (RNG) and a biochar that replaces coal in steel plants.
And they have early adopters who have signed contracts in each of them.
This company is funded, and is racing towards revenue on three fronts. I see it as one of TWO potential 10-baggers in my portfolio. Get the report, name and symbol of this company right HERE.