(Veteran tech analyst Jon D. Markman publishes Strategic Advantage, a guide to investing in the digital transformation of business and society. Click here for a free trial.
Clean energy momentum has been building for more than a decade. Now it is set to accelerate. Investors should consider taking positions in First Solar (FSLR) and Generac (GNRC).
Thanks to the Georgia Senate races, President-elect Joe Biden comes to the White House with Democratic majorities in both the House and the Senate. He is likely pump up interest in renewable power and battery technologies.
That should be the impetus for the next wave of clean energy investing.
To be clear, the sector has been on a winning streak. From Next Era Energy ( (NEE) - Get NextEra Energy, Inc. Report), the biggest renewable power utility company in the United States to Tesla ( (TSLA) - Get Tesla Inc Report), green stocks have had the attention of investors during 2020. A wave of socially conscious investing swelled into a tsunami during the pandemic.
Environmental, social and corporate governance investing, also known as ESG, shifts the focus from shareholders to stakeholders. The big idea is that while profits are good for shareholders, corporate policies that benefit stakeholders – employees, customers, suppliers and the environment – are preferable.
Investors put a record $27.4 billion into ESG exchange traded funds in 2020 according to a report from the Wall Street Journal, effectively doubling the size of the sector. Now a new political regime in Washington is about to up the ante.
Biden put economic recovery and climate change at the top of his political agenda. He even promised to spend $2 trillion to make it all happen. Senate Republicans may still get in the way but will not upset the narrative.
A Politico story last week claims a Biden administration may kickstart its environmental agenda with money left over from the 2009 stimulus program. The Department of Energy has $40 billion in unused loan authority. Some minor tweaking would see the DoE set up as a lending facility for battery installation and other green initiatives to drive economic growth.
That’s clearly the objective of Jennifer Granholm, President-elect Biden’s pick to run the DOE. Granholm was the governor of Michigan and worked with the Obama administration in 2009 on the auto industry bailout, including a program that helped build batteries for the Chevy Volt.
Generac makes machines that store power. Its legacy business began building gas powered generators way back in 1959. The Waukesha, Wisc.-based company shifted gears in 2019 with the prescient acquisitions of Pika Energy and Neurio Technology. The deals allowed Generac to become a power storage appliance company.
Fancy nomenclature aside, the goal was to disrupt the $4 trillion electric utility business by giving consumers a battery storage appliance to manage clean, renewable energy collected from rooftop solar panels.
Aaron Jagdfeld, chief executive officer, told analysts in October that its PWRcell Energy Storage business has grown 3x faster than projected, a trend that is certain to accelerate if the DoE gets involved with special purpose loans.
First Solar is in the other end of the clean energy business spectrum. The Tempe, Arizona-based company used to be a vertically integrated solar business servicing the utilities sector. It designed, manufactured, sold and serviced panels suitable for large utility customers like Next Era. Today the business is focused only on manufacturing state-of-the-art thin film solar panels.
The transition began in 2019 as managers correctly anticipated widening demand from utilities companies. Currently First Solar is contracted to manufacture systems representing 12.2 Gigawatts of capacity, with 8.3 GW in the pipeline, according to the most recent Securities and Exchange Commission filing. This represents a backlog of about 3 years given current manufacturing capacity. And with $1.4 billion cash on hand, the company is in a good position to add new capacity as more customers come online.
First Solar logged sales of $3 billion in 2019, up 36.4% from a year ago.
It’s rare for Washington policy changes to set the agenda for investors. However a Senate majority for Democrats coupled with plans to remake the DOE with clean energy loans and incentives should accelerate demand. It will certainly help with the investment narrative. And don’t forget the ESG tailwind.
Generac and First Solar were strong performers in 2020, rallying 126% and 76%, respectively. At 3x sales for First Solar, and 6x sales for Generac, investors are clearly optimistic about future growth.
Given the changing politics in Washington, it’s a good bet. Investors should consider using any future weakness in the shares to buy.