Renewables are due for a return, this investor says

The sector was a star last year but definitely a dog in 2021 but don’t be surprised if there’s a surge in the space coming up, says portfolio manager Rob Lauzon of Middlefield Capital Corp, who thinks renewables have long-term staying power.

“The whole renewable sector has been neutral all year and in fact some of the names are down 15 per cent or so on the development and utility side of renewables,” said Lauzon, managing director and deputy chief investment officer at Middlefield, who spoke on BNN Bloomberg on Monday.

Solar, wind, renewable natural gas help make up the renewables space which saw lots of attention leading up to 2021, with governments worldwide looking to make good on their green energy promises and corporations, universities, pension funds and the like all shifting their weight away from investments in fossil fuels.

Last month, for instance, the Caisse de dépôt et placement du Québec made the call to divest itself of all oil-producing assets by the end of 2022, while last year the world’s biggest investor Blackrock made waves when CEO Larry Fink said climate change is now a focal point of the company’s investment strategy, effectively calling on all companies to disclose their plans to transitioning to a lower carbon economy.

If that wasn’t enough, the tides turned last fall when Democrat Joe Biden got elected to the US Presidency with a pledge to devote huge resources to his Build Back Better reconciliation bill and to updating the country’s infrastructure with a firm eye on renewable energy sources.

It was those types of tailwinds that seemed to push renewable stocks to greater heights last year, where big names in the space like Jinkosolar (Jinkosolar Stock Quote, Charts, News, Analysts, Financials NYSE:JKS) and Vestas Wind Systems (Vestas Wind Systems Stock Quote, Charts, News, Analysts, Financials OTC:VWDRY) either doubled or tripled in value over 2020. Canadian companies partook in the gains, too, including Brookfield Renewable Partners (Brookfield Renewable Partners Stock Quote, Charts, News, Analysts, Financials TSX:BEP.UN), which put on about 55 per cent for the year.

But things have changed for renewables this year, in part seemingly due to an overheated sector as well as a diminished sense that Biden’s multi-trillion-dollar infrastructure plans might get severely watered down.

Lauzon says a resurrection of oil and gas stocks has also played a role.

“Part of that reason is we’ve had just some of the earnings be a little lower than estimated because of the wind not blowing as strong as predicted in some offshore areas in Europe, which is part of the reason that we’ve had some energy problems over there right now,” Lauzon said. “But I think legacy energy — oil and gas — has been so strong this year the pricing, that funds flow, has moved out of renewables, which I view as clean energy and new energy, new clean energy back into legacy oil and gas stocks.”

“I think, one catalyst for the renewable sector will be a softening or a slowdown in oil and gas prices which can move money back into the renewable sector,” he said.

“I think renewables have a great future,” Lauzon said. “We’re going to hear a lot about renewables, again here in the next couple weeks and months as COP26 happens where all the global leaders get together. Plus, they’ll finally in early next year, I believe, pass this reconciliation bill in the States which will have lots of goodies in there for the renewable sector,” he said.

Lauzon said he likes Brookfield in the renewables space but there are other options which perhaps can be bought at better valuations. The company, which is 60 per cent owned by Brookfield Asset Management, has a stable of assets in hydroelectric, wind, solar and storage around the globe. All told, BEP’s assets make for over 20,000 MW of installed capacity, with more than that in its pipeline.

“[Brookfield Renewable] is kind of the most expensive one because of its strong partner and parent in Brookfield, the parent, so it’s got great management. It trades at a bit of a premium, we do like it but there are other cheaper ways, we think, to get exposure to renewables both solar and wind and hydrogen through other companies that trade at a bit of a cheaper multiple; hence, we would have in our funds a higher weighting in those names over BEP, Brookfield, renewable,” Lauzon said.

Brookfield, which has a dividend yield currently at 3.2 per cent, is now down 14.5 per cent year-to-date. The company last reported its financials in August where its second quarter earnings featured funds from operations of $268 million or $0.42 per unit, which was up five per cent from the prior year period.

“We had a strong quarter, as we delivered solid financial results and executed on a number of key strategic initiatives including securing a 25-year contract-for-difference to support almost 1.5 gigawatts of offshore wind, initiated one of the largest onshore wind repowerings in the world, and entered a strategic collaboration with the world’s largest corporate buyer of renewable power,” said Connor Teskey, CEO of Brookfield Renewable, in a press release.

About The Author / Jayson MacLean

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

Comment

One thought on “Renewables are due for a return, this investor says”

Steve Lund says:

December 25, 2021 at 12:02 pm

It’s time to start enumerating the advantages of “Waste to Energy” from the production of RNG as compared to Renewable Electricity. The fact that RNG is interchangable with fossil natural gas allows it to seamlessly replace fossil natural gas using existing infrastructure for cooking, heating, fueling electric power plants, and replacing diesel fuel in Heavy Duty Truck Transportation. We can’t wait for the ramp up that would be needed for Renewable Electricity. Use Renewable Electricity to replace the electricity now produced by fossil fuel power plants.