Enphase sees strong demand for its made-in-America gear for solar panels.
Courtesy Enphase
Text size
A boom in clean-energy manufacturing is fast getting under way across the U.S. Factories are suddenly cranking out everything from solar and wind equipment to batteries and low-carbon fuel. Corporate investment dollars, spurred by new tax breaks, are transforming the U.S. from an also-ran in alternative energy to a real player, lifting the fortunes of a number of companies.
Since President Joe Biden earmarked $370 billion for clean energy in the Inflation Reduction Act in August, there have been 76 announcements of clean-energy projects, notes
Credit Suisse
.
Of those, 40 specified dollar amounts, totaling $77 billion.
“We’re basically accelerating the energy transition at ludicrous speed,” says Michael Cerasoli, portfolio manager at Eagle Global Advisors.
Despite the dollars flooding in, it remains difficult to invest profitably in clean-energy companies. Some products, such as solar panels and batteries, trade like commodities, with little differentiation between companies. Others, like wind turbines, sell into highly regulated industries where returns are partially controlled by regulators.
To find stocks that can rise despite those pressures, it’s worth considering names that have found true niches or have a head start in specific areas. These include glass and solar-material maker
Corning
(ticker: GLW), solar equipment company
Enphase Energy
(ENPH), biofuels producer
Neste
(NTOIY), energy-efficiency company
Schneider Electric
(SBGSY), and battery maker
Freyr Battery
(FREY).
| Company / Ticker | Recent Price | YTD Change | Market Value (bil) | 2023E P/E |
|---|---|---|---|---|
| Corning / GLW | $34.62 | 8.3% | $29.1 | 16.6 |
| Enphase Energy / ENPH | 198.99 | -25.0 | 27.8 | 38.5 |
| Freyr / FREY | 8.40 | -3.2 | 1.2 | N/A |
| Neste / NTOIY | 23.80 | 3.7 | 36.1 | 14.8 |
| Schneider Electric / SBGSY | 32.70 | 17.2 | 91.2 | 19.7 |
E=estimate; N/A=not applicable
Source: Bloomberg
Most new investment since the law passed has gone into battery factories, primarily to supply electric vehicles. There are subsidies for those plants, and auto makers need North American batteries to qualify for the largest tax benefits. At least 17 new battery plants are being built, including factories for
Panasonic
in Kansas and
Toyota
in North Carolina, according to Bank of America. But the factory expansion also threatens industry profitability. Credit Suisse predicts the U.S. market could actually be oversupplied by middecade as capacity ramps up, “which could put pricing pressure on battery manufacturers down the road.”
One way to buy into batteries is through Freyr, based in Norway. Freyr focuses on energy storage, allowing renewable producers such as wind and solar farms to store energy for when wind isn’t blowing or sun isn’t shining. Freyr said in November that it had bought land in Georgia for a $1.7 billion factory, spurred in part by federal, state, and county subsidies. Energy storage is often “glossed over” even though it “stands today as the only bankable answer for coal retirements and increasing grid dependence on renewable” energy, writes
Bank of America
analyst Julien Dumoulin-Smith, who rates Freyr a Buy and thinks shares can rise to $13 from a recent $8. Freyr has contracts but no revenue, so the stock is relatively risky.
California-based Enphase has found a profitable niche making high-tech solar components known as inverters, and also sells batteries to residential solar customers. In an industry with little differentiation and low margins, Enphase stands out for solid profitability and 40%-plus gross margins. A deceleration in the solar market at the start of the year knocked 25% off its shares, leaving the stock trading at a relative discount to its recent past. Enphase is opening factories in the U.S. this year to make inverters, betting on tax credits from the IRA, cheaper shipping costs, and a consumer preference for domestic products. “Our installers have been asking for Made in America products,” CEO Badri Kothandaraman tells Barron’s. “They would like to sell a Made in America product to the homeowners who don’t want to buy something that is made in China.”
France’s Schneider Electric is a one-stop-shop for electrification; about a third of its revenue comes from North America. Schneider makes standard electrical equipment like circuit breakers, but also sophisticated software to manage electrical systems, and microgrids that give consumers and organizations more control over their electricity. “We have shifted a lot of supply into the United States,” says Jeannie Salo, the executive in charge of Schneider’s government relations.
Corning, based in upstate New York, makes glass for televisions and cars. But the company has a growing solar business too, creating polysilicon at a Michigan factory where it holds a majority stake. Federal officials have lamented the lack of U.S. polysilicon production, and included subsidies for production in the IRA. Corning restarted its polysilicon production at the Michigan factory last year and has already seen orders jump. Solar was a rare bright spot in its latest quarter, because its core business was suffering from “essentially recession-level demand,” says CEO Wendell Weeks. The segment that includes solar grew 22% even as total company sales fell 7%.
Finnish company Neste makes renewable diesel from animal fats and vegetable oils that can be used in conventional diesel engines. Neste partnered with
Marathon Petroleum
(MPC) last year to turn a former California oil refinery into a renewable one, and expects to produce 17 million barrels annually by year end that will be eligible for state and federal credits. Neste also leads in sustainable aviation fuel, which can be mixed with jet fuel to make airplane travel less carbon-intensive. The market is small but countries have announced ambitious goals, with Japan planning to use it for 10% of its jet fuel by 2030. Airlines have pledged to invest in new fuel capacity.
A year ago, the U.S. was a wasteland for clean-energy manufacturing. The spending boom is changing that, and investors can go along for the ride.
Write to Avi Salzman at avi.salzman@barrons.com
Enphase sees strong demand for its made-in-America gear for solar panels.
Courtesy Enphase
Text size
A boom in clean-energy manufacturing is fast getting under way across the U.S. Factories are suddenly cranking out everything from solar and wind equipment to batteries and low-carbon fuel. Corporate investment dollars, spurred by new tax breaks, are transforming the U.S. from an also-ran in alternative energy to a real player, lifting the fortunes of a number of companies.
Since President Joe Biden earmarked $370 billion for clean energy in the Inflation Reduction Act in August, there have been 76 announcements of clean-energy projects, notes
Credit Suisse
.
Of those, 40 specified dollar amounts, totaling $77 billion.
“We’re basically accelerating the energy transition at ludicrous speed,” says Michael Cerasoli, portfolio manager at Eagle Global Advisors.
Despite the dollars flooding in, it remains difficult to invest profitably in clean-energy companies. Some products, such as solar panels and batteries, trade like commodities, with little differentiation between companies. Others, like wind turbines, sell into highly regulated industries where returns are partially controlled by regulators.
To find stocks that can rise despite those pressures, it’s worth considering names that have found true niches or have a head start in specific areas. These include glass and solar-material maker
Corning
(ticker: GLW), solar equipment company
Enphase Energy
(ENPH), biofuels producer
Neste
(NTOIY), energy-efficiency company
Schneider Electric
(SBGSY), and battery maker
Freyr Battery
(FREY).
| Company / Ticker | Recent Price | YTD Change | Market Value (bil) | 2023E P/E |
|---|---|---|---|---|
| Corning / GLW | $34.62 | 8.3% | $29.1 | 16.6 |
| Enphase Energy / ENPH | 198.99 | -25.0 | 27.8 | 38.5 |
| Freyr / FREY | 8.40 | -3.2 | 1.2 | N/A |
| Neste / NTOIY | 23.80 | 3.7 | 36.1 | 14.8 |
| Schneider Electric / SBGSY | 32.70 | 17.2 | 91.2 | 19.7 |
E=estimate; N/A=not applicable
Source: Bloomberg
Most new investment since the law passed has gone into battery factories, primarily to supply electric vehicles. There are subsidies for those plants, and auto makers need North American batteries to qualify for the largest tax benefits. At least 17 new battery plants are being built, including factories for
Panasonic
in Kansas and
Toyota
in North Carolina, according to Bank of America. But the factory expansion also threatens industry profitability. Credit Suisse predicts the U.S. market could actually be oversupplied by middecade as capacity ramps up, “which could put pricing pressure on battery manufacturers down the road.”
One way to buy into batteries is through Freyr, based in Norway. Freyr focuses on energy storage, allowing renewable producers such as wind and solar farms to store energy for when wind isn’t blowing or sun isn’t shining. Freyr said in November that it had bought land in Georgia for a $1.7 billion factory, spurred in part by federal, state, and county subsidies. Energy storage is often “glossed over” even though it “stands today as the only bankable answer for coal retirements and increasing grid dependence on renewable” energy, writes
Bank of America
analyst Julien Dumoulin-Smith, who rates Freyr a Buy and thinks shares can rise to $13 from a recent $8. Freyr has contracts but no revenue, so the stock is relatively risky.
California-based Enphase has found a profitable niche making high-tech solar components known as inverters, and also sells batteries to residential solar customers. In an industry with little differentiation and low margins, Enphase stands out for solid profitability and 40%-plus gross margins. A deceleration in the solar market at the start of the year knocked 25% off its shares, leaving the stock trading at a relative discount to its recent past. Enphase is opening factories in the U.S. this year to make inverters, betting on tax credits from the IRA, cheaper shipping costs, and a consumer preference for domestic products. “Our installers have been asking for Made in America products,” CEO Badri Kothandaraman tells Barron’s. “They would like to sell a Made in America product to the homeowners who don’t want to buy something that is made in China.”
France’s Schneider Electric is a one-stop-shop for electrification; about a third of its revenue comes from North America. Schneider makes standard electrical equipment like circuit breakers, but also sophisticated software to manage electrical systems, and microgrids that give consumers and organizations more control over their electricity. “We have shifted a lot of supply into the United States,” says Jeannie Salo, the executive in charge of Schneider’s government relations.
Corning, based in upstate New York, makes glass for televisions and cars. But the company has a growing solar business too, creating polysilicon at a Michigan factory where it holds a majority stake. Federal officials have lamented the lack of U.S. polysilicon production, and included subsidies for production in the IRA. Corning restarted its polysilicon production at the Michigan factory last year and has already seen orders jump. Solar was a rare bright spot in its latest quarter, because its core business was suffering from “essentially recession-level demand,” says CEO Wendell Weeks. The segment that includes solar grew 22% even as total company sales fell 7%.
Finnish company Neste makes renewable diesel from animal fats and vegetable oils that can be used in conventional diesel engines. Neste partnered with
Marathon Petroleum
(MPC) last year to turn a former California oil refinery into a renewable one, and expects to produce 17 million barrels annually by year end that will be eligible for state and federal credits. Neste also leads in sustainable aviation fuel, which can be mixed with jet fuel to make airplane travel less carbon-intensive. The market is small but countries have announced ambitious goals, with Japan planning to use it for 10% of its jet fuel by 2030. Airlines have pledged to invest in new fuel capacity.
A year ago, the U.S. was a wasteland for clean-energy manufacturing. The spending boom is changing that, and investors can go along for the ride.
Write to Avi Salzman at avi.salzman@barrons.com
