In this article, we look at the 8 most promising clean energy stocks according to hedge funds.
The Future of Clean Energy
The clean energy industry is rapidly becoming one of the most significant sectors globally. A report by Business Research Company estimates that the global clean energy market, valued at $1.10 trillion in 2024, is projected to grow to $1.55 trillion by 2028, at a compound annual growth rate (CAGR) of 8.8%. Environmental concerns, along with stringent regulations in many developed countries, are driving this expansion. Additionally, rising global power demand and energy consumption are critical factors fueling growth in the clean energy market.
The International Energy Agency (IEA) forecasts that global energy demand will increase by 3.4% annually through 2026, with China and India accounting for 85% of this growth. India, in particular, is expected to see a 6% annual increase in energy demand driven by its strong economic growth and rising household consumption. Southeast Asia is forecasted to experience a 5% annual rise in electricity demand over the same period. In the United States, data centers, artificial intelligence (AI), and cryptocurrency operations are expected to cause an increase in electricity demand, potentially doubling usage to 1,000 TWh by 2026.
IEA forecasts suggest that the growth in electricity generation from low-emission sources will meet the global demand increase over the next few years, with clean energy projected to surpass coal as the primary energy source by early 2025. In the US, the Energy Information Administration (EIA) expects clean energy deployment to grow by 17% in 2024, potentially reaching 42 GW and accounting for nearly a quarter of the nation’s electricity generation. However, this expansion might come with a temporary rise in clean energy costs due to higher financing, labor, and land expenses.
Despite these cost challenges, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are expected to keep solar and wind energy competitive. Solar and energy storage markets are set for further growth, driven by these tax incentives and government support, particularly from the Department of Energy’s (DOE) Loans Program Office. On the other hand, the wind and hydrogen energy sectors may face obstacles, such as higher deployment costs for wind energy and limited government incentive programs for hydrogen development.
Tyler Rosenlicht, Head of Natural Resource Equities, at Cohen & Steers, in an interview to Bloomberg, shared his insights on the future of energy markets, emphasizing the growth of renewable and clean energy sources. According to Rosenlicht, the energy landscape is diversifying, with natural gas, nuclear, and alternatives gaining prominence alongside oil. He noted that while oil remains a significant driver of production and energy supply, its dominance is diminishing. The increasing demand for energy to power technological advancements, urbanization, and travel is driving the growth of other energy sources.
Rosenlicht highlighted the importance of considering the broader energy landscape, beyond just oil, to understand the changing dynamics of the market. He emphasized that the energy intensity of the global economy is becoming more complex, with technological growth leading to increased energy consumption.
In the context of renewable energy, Rosenlicht expressed his bullishness on companies building electrification assets and infrastructure to satisfy growing electricity demand. He specifically mentioned companies that construct transmission wires, trains, and mission lines as potential investment opportunities. Furthermore, Rosenlicht emphasized the significance of nuclear energy in the long run, citing the need to refurbish existing nuclear assets and build new ones globally to meet the demand for low-carbon energy. He also highlighted the potential of integrated energy companies that are pursuing the energy transition using their existing infrastructure and assets.
On the traditional energy side, Rosenlicht expressed his liking for U.S. natural gas, citing the growing demand for LNG exports to global consumers and the expected curtailment of supply in the next few years. Rosenlicht acknowledges that the energy market is undergoing a significant transformation, with renewable and clean energy sources gaining traction. As an investor, he is optimistic about the prospects of companies involved in building the infrastructure and assets necessary to support this transition.
The clean energy sector is well-positioned for substantial growth, driven by rising environmental awareness, supportive regulations, and technological advancements in wind, solar, and hydropower. While the industry does face challenges like high upfront costs and technological barriers, the overall outlook remains optimistic. With that in context here are the 8 most promising clean energy stocks according to hedge funds.
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Our Methodology
For this article, we scanned Clean Energy ETFs plus online rankings to compile an initial list of 50 clean energy stocks. From that list, we narrowed our choices to 8 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Promising Clean Energy Stocks According to Hedge Funds
8. Sunrun (NASDAQ:RUN)
Number of Hedge Fund Holders: 35
Sunrun (NASDAQ:RUN) is one of the largest solar energy companies in the United States, offering a solar-as-a-service solution that enables homeowners to adopt solar power with little or no upfront cost. This model makes solar energy more accessible to a wide range of customers.
In Q2, Sunrun (NASDAQ:RUN) reported a 14.33% increase in revenue, reaching $523.87 million, while net income surged by 258.37% to $139.07 million. The company’s net profit margin rose to 26.55%, a significant 179.75% improvement compared to the same period last year. Sunrun’s (NASDAQ:RUN) multi-channel strategy, including direct-to-consumer sales and strategic partnerships, allows it to effectively reach a broad customer base. This diversified approach not only boosts customer acquisition but also strengthens its brand presence in a highly competitive market. The company primarily focuses on lease agreements and power purchase agreements (PPAs) which provide stable and predictable pricing by tailoring solutions for individual homes.
Sunrun’s (NASDAQ:RUN) integrated platform, which collaborates with sales and installation firms, enhances operational efficiency, enabling the company to scale rapidly and maintain a leading position in the residential solar market. The growing adoption of energy storage solutions is further boosting the company’s prospects, as more homeowners seek to combine solar power with battery storage, creating opportunities for substantial annual recurring revenues. Additionally, Sunrun (NASDAQ:RUN) is investing in infrastructure and technology to enhance margins and profitability as it scales its operations and optimizes its business model.
7. Clearway Energy (NYSE:CWEN)
Number of Hedge Fund Holders: 38
Clearway Energy (NYSE:CWEN) owns a diverse portfolio of wind, solar, and traditional power generation projects across the United States. Clearway Energy (NYSE:CWEN) has partnered with Global Infrastructure Partners (GIP), an independent infrastructure investment fund, and TotalEnergies (EPA:TTE), a multinational energy and petroleum company, to leverage their expertise in expanding clean energy capabilities in the US.
Clearway Energy (NYSE:CWEN) is actively developing large-scale clean energy projects, including the Luna Valley and Daggett I projects in California, both of which are expected to be completed by 2025. The Daggett Storage I Project is a 113.5 MW battery storage facility in San Bernardino County, part of a larger 482 MW solar and 394 MW storage complex. Meanwhile, the Luna Valley Solar Project in Fresno County is a 200 MW solar facility that will generate enough electricity to power over 80,000 homes once completed.
These projects are backed by long-term contracts with investment-grade entities, ensuring stable and predictable earnings. Clearway Energy’s (NYSE:CWEN) diversified portfolio and strategic focus on clean energy assets position it well to capitalize on the global transition toward clean energy, offering significant long-term growth potential.