I read two articles last week about the end of oil being closer than we think. Both had the same broad theme: prices for renewable resources such as solar, wind, biomass, and geothermal are coming down faster that anyone expected. It’s just a matter of time – a shorter time than anyone expected – before oil drops to $0 a barrel, the oil sands close down, and fossil fuels are a thing of the past.
All this is the reason for the international oil price war. Every country wants to get its products out of the ground and cash in before the entire industry goes bust. If this thesis is to be believed, oil may not go much higher that its current level. It then goes into a long decline, with only the lowest-cost producers (read the Persian Gulf states) left standing as the price drops below $20 a barrel, en route to that magic zero number.
Frankly, I don’t think the oil age is going to end all that quickly. The global economy does not turn on a dime. There is a lot of technology still to be developed to ease us off fossil fuels for good. No aircraft company is sinking billions of dollars into solar-power passenger airplanes at this point. Despite the rise of Tesla, electric cars are still a long was from dominating dealer’s showrooms. Our transportation industry, from railroads to transport trunks, continues to operate on fossil fuels.
But while I believe the transition will be longer than the zero-oil advocates contend, it is coming and it’s inexorable. There are a growing number of renewable energy companies making profits for investors right now, with more on the way. If you want to get in on the ground floor, here are two stocks to look at. Ask your financial advisor if either is worthy of a place in your portfolio.
Brookfield Renewable Partners (TSX: BEP.UN, NYSE: BEP). This Bermuda-based limited partnership operates one of the world’s largest publicly traded renewable power portfolios. Its assets include hydroelectric dams and wind projects in North America, South America, and Europe. Total installed capacity is more than 10,000MW, which is enough renewable energy to power four million homes. The company is a spinoff from Toronto’s Brookfield Asset Management, which maintains a controlling interest.
The partnership got off to a strong start this year with first-quarter revenue increasing 53 per cent over the previous year to $674 million (figures in U.S. dollars). Funds from operations (FFO) came in at $187 million ($0.68 per unit) compared with $153 million ($0.56 per unit) in the same period of 2015. Net income was $79 million ($0.16 per unit, fully diluted), up from $51 million ($0.10 per unit) in the prior year.
The units pay a quarterly distribution of US$0.445 (US$1.78 per year). The LP targets distribution increases of between 5 per cent and 9 per cent annually. The yield at the recent price of US$29.37 is just over 6.1 per cent.
This partnership offers sustainable cash flow, international diversification, and the deep pockets needed for continued growth.
TransAlta Renewables Inc. (TSX: RNW, OTC: TRSWF). This is a spinoff company from TransAlta Corp., which retains majority control. The parent company “drops down” assets into this company’s portfolio in exchange for cash and debt assumption.
The mandate is to develop and manage a portfolio of renewable energy resources that includes wind, hydro, and natural gas. Most of the gas operations are in Western Australia; however the largest one with 506 megawatts (MW) is in Sarnia.
The hydro projects, most of which are quite small, are concentrated in B.C., Alberta, and Ontario. Wind facilities are spread across Canada, with one in Wyoming. The company has 1,349 MW in total generating capacity, making it Canada’s largest producer of wind power.
In total, the partnership has interests in 18 wind facilities, 13 hydroelectric facilities, eight natural gas generation facilities (including one currently under construction), and one natural gas pipeline.
Revenue was flat in the first quarter of 2016 at $68 million. The company reported a net loss of -$36 million (-$0.16 per share), mainly due to acquisition costs. However, adjusted funds from operations increased 91 per cent, to $82 million ($0.37 per share) compared with $46 million (also
The company increased its monthly dividend by 4.7 per cent at the start of this year, to $0.0733 (about $0.88 annually). The shares yield 6.8 per cent at a recent price of $13.
To sum up, both these stocks are attractive for investors who want to add some clean energy to their portfolios and who are willing to accept somewhat more risk. The yield in both cases is high but appears sustainable and the two companies have lots of room to grow as the green momentum builds. SOURCE
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.