Investors are pouring money into clean-tech, and Cowen developed a list of top options for investors to benefit from the energy revolution.
Additionally, the company also said that many of these enterprises now seem to be profitable even without government assistance. Solar and wind energy, on the other hand, are becoming cheaper all the time, making them more cost-effective in two-thirds of the globe.
Despite the pandemic, investment in the energy transition increased by 12% to $523.5 billion globally in 2020, according to Cowen, and the sector is expected to grow in the mid-single digits in the coming years.
Enphase Energy and SolarEdge are two solar inverter companies that Cowen likes. Both companies work on module-level power electronics inverters, which are specialized inverters. These inverters are critical components of solar systems and are frequently referred to as the “brains” of a system.
Enphase’s addition of energy storage options on top of its solar systems, according to Cowen, will increase revenue per household from around $2,000 to $10,000, all without sacrificing margins. “We anticipate that market share gains in Europe, combined with the introduction of a commercial inverter in late 2021, will drive top-line results in the remainder of 2021 and beyond,” Cowen said.
When it comes to SolarEdge, the company claims that its expansion into the commercial market will drive future growth.
Cowen wrote that “resumption of growth in the COVID-19 challenged commercial market is poised to shift from a headwind to a tailwind, and the company is slated to introduce their long-awaited residential energy storage product in mid-2021.”
As a result of supply-chain issues and other factors, each stock is down more than 20% for 2021. The downturn comes after Enphase increased by more than 500% in 2020.
Itron was also mentioned as a top pick in the solar sector by the firm. The company assists utility operators in measuring, managing, and analyzing power dynamics. Utility companies will require smarter systems to monitor their power supply and demand as more power is distributed — or produced on-site rather than at a central facility.
Cowen’s list comes amid general weakness in the clean energy sector. The iShares Global Clean Energy ETF is down 21% year to date, while the Invesco WilderHill Clean Energy ETF is down 16%. Cowen observed that, as clean energy stocks surged in 2020, investors gravitated toward the same 10 to 15 stocks, making already crowded long positions “even more crowded.”
Rising rates and inflation fears have weighed on the sector and growth-oriented areas of the market more broadly since the sector’s peak in January.
“While we anticipate a bumpy ride in the markets, we highlight that the economics of sustainable energy, mobility, and efficiency are becoming increasingly compelling, and, in our opinion, the Sustainability and Energy Transition secular shift is only accelerating,” the firm said.
Cowen also mentioned Hannon Armstrong, a company that finances solar and wind projects. Hannon’s yields are rising across its investment portfolio, according to the firm, while its cost of capital is falling at a rate that can offset rising rates.
“We see the company entering new growth verticals such as agriculture technology, electric vehicle charging, and hydrogen, which should also offer compelling risk-adjusted returns,” said the firm.
Due to an increase in investor interest over the last year, Cowen’s 2021 list includes expanded coverage of hydrogen. Hydrogen is critical to the energy transition because it can decarbonize areas such as heavy industry and shipping, but it is still prohibitively expensive to produce in many cases.
Nonetheless, the firm pointed to Plug Power, a hydrogen fuel cell vendor, as a way to gain exposure to the theme. The company stated that it has produced over 40,000 fuel cells, primarily for the material handling market, which is the “only end market today showing widespread adoption of fuel cells on an economic basis without the need for tax credits.”