Alternative Energy Likely to Flourish in Near Future: 5 Picks

The United States is expected to see robust demand for electric power from artificial intelligence-driven data center growth, widespread adoption of electric vehicles, and an increase in residential demand. Aside from electric power utility, alternative energy is emerging as an industry promising gains in the long term.

The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other is engaged in the development, design and installation of renewable projects involving these alternative energy sources. 
Impressive Projections

Since 2010, the total demand for electric power in the United States has remained stable at around 4,000 terawatt-hours (TWh). The Electric Power Research Institute, in its "Powering Intelligence: Analyzing Artificial Intelligence and Data Center Energy Consumption" report, projected that data centers would consume 9.1% of total U.S. electricity generation by 2030 compared with 4.6% at present. 

The report said, "AI queries require approximately ten times the electricity of traditional internet searches and the generation of original music, photos, and videos requires much more." The Federal Energy Regulatory Commission reported that the data center electricity demand across the United States is expected to climb to 35 gigawatts (GW) in 2030 from 19 GW in 2023. 

A research report by Rystad Energy predicted that the combined expansion of traditional and AI-driven data centers, along with chip foundries, will increase the cumulative demand for U.S. electric power by 177 TWh from 2023 to 2030, reaching a total of 307 TWh. 

EVs will emerge as the second major catalyst for power demand growth in the United States. The expansion of battery EVs will raise the demand for electricity from 18.3 TWh in 2023 to 131 TWh in 2030. Rystad Energy estimates that total U.S. power demand across the residential, commercial, and industrial sectors will reach 4,500 TWh in 2030.

Major investment bank The Goldman Sachs Group Inc. GS forecasts that the U.S. data center power demand will grow 160% by 2030 owing to the ongoing AI revolution. The report said, "At present, data centers worldwide consume 1-2% of overall power, but this percentage will likely rise to 3-4% by the end of the decade. In the United States and Europe, this increased demand will help drive the kind of electricity growth that hasn't been seen in a generation."

Other Positives

Alternative energy operators, in order to maintain, upgrade and expand operations, approach capital markets for loans as the funds generated from internal sources are not always sufficient. Therefore, a low interest rate regime is beneficial for the electric power industry. The CME FedWatch tool currently shows that market participants are highly optimistic about two rate cuts of 25 basis points each in 2024.

Consequently, operators planning to invest large amounts in infrastructure upgrades and add renewable sources of energy to produce clean electricity may be able to borrow funds at a lower rate, which will decrease the overall cost of the long-term projects, raising their profit and margins.

Our Top Picks

We have narrowed our search to five alternative energy stocks that are regular dividend payers. These stocks have good potential for the rest of 2024 and have seen positive earnings estimate revisions within the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy).

The chart below shows the price performance of our five picks year to date.

Image Source: Zacks Investment Research

Constellation Energy Corp. CEG generates and markets electricity. CEG's operating segment consists of the Mid-Atlantic, Midwest, New York, ERCOT and Other Power Regions. CEG sells natural gas, renewable energy and other energy-related products and services. CEG serves distribution utilities, municipalities, cooperatives, and commercial, industrial, governmental, and residential customers.

Constellation Energy has an expected earnings growth rate of 52.7% for the current year. Although its revenue growth rate is negative for the current year, it is 2.4% for next year. The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the last 60 days. CEG has a current dividend yield of 0.7%.

NextEra Energy Partners LP NEP has completed several financing agreements to secure funds for acquisitions and improve financial flexibility. The passage of the Inflation Reduction Act and the use of new technology are helping NEP develop renewable projects.

NEP's current portfolio has meaningful organic growth opportunities in the coming years. The assets acquired by NEP are providing it with additional long-term investment opportunities. A disciplined investment approach will allow NEP to expand operations, remain competitive and increase the cash distribution of its unitholders over the long term.

NextEra Energy Partners has an expected revenue and earnings growth rate of 0.5% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.6% over the last 60 days. NEP has a current dividend yield of 13.4%.

Clearway Energy Inc. CWEN is benefiting from its focus on North American operations and modern utility-scale clean renewable projects that ensure high fleet availability and low maintenance costs. Net proceeds from the disposition of the Thermal Business to KKR allowed CWEN to lower corporate borrowings and reduce its debt level.

CWEN's primary business strategy is to focus on acquisitions and ownership of assets that have predictable and long-term cash flows to increase the cash dividends paid to holders of its Class A and Class C common stock over time, without compromising the ongoing stability of the business.

Clearway Energy has an expected revenue and earnings growth rate of 7.2% and 50.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.8% over the last 90 days. CWEN has a current dividend yield of 6.5%.

Crescent Energy Co. CRGY is an independent oil and natural gas company that acquires, explores, develops, exploits and produces crude oil and natural gas properties principally in the shallow waters of the Gulf of Mexico and onshore properties in Texas, Oklahoma, Louisiana and Wyoming in the United States.

CRGY has an expected revenue growth rate of 21.2% for the current year. Although its earnings growth rate is negative for the current year, it is 63.7% for next year. The Zacks Consensus Estimate for current-year earnings has improved 39.5% over the last 90 days. CRGY has a current dividend yield of 4%.

TC Energy Corp. TRP is a predominantly natural gas pipeline operator with operations spanning Canada, the United States and Mexico. A quality stock with industry-leading wide moat assets, TRP has a secured portfolio of C$34 billion in growth projects. This should support TRP's stated dividend growth commitment of 3-5% annually in the future. TRP's strategic asset management and divestiture program positions it to maximize asset value.

TRP has an expected revenue growth rate of 0.3% for the current year. Although its earnings growth rate is negative for the current year, it is 0.9% for next year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last seven days. TRP has a current dividend yield of 6.7%.

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