Key points
- Renewable energy stocks could rally as global economies transition to cleaner energy sources
- There are a number of exciting companies in the UK to gain exposure to this trend
- Other sectors and industries will play crucial roles, opening up more opportunities for investors
We’re about to see a big uplift in renewable energy capacity, at least according to the International Energy Agency (IEA). It’s forecasting an additional 305 GW of renewable electricity capacity per year between 2021 and 2026. If the forecast is correct, then it would be a huge 60% above the increase in capacity over the previous five years. With such explosive growth forecast, I’ve been looking for renewable energy stocks to buy for my portfolio.
The London Stock Exchange is home to a number of potential stocks in this sector. I started looking at investment trusts to begin with as they can offer me a greater level of diversification compared to buying a single company. I still have to be aware of the potential for share price volatility though as investment trusts do trade on a stock exchange.
The first renewable energy stock I’d buy is The Renewables Infrastructure Group, or TRIG. It’s an investment trust that’s dedicated to investing in assets that generate renewable electricity. I view this as a great way to gain exposure to the growing renewable energy sector. For example, TRIG is able to generate over 1,900 MW of power across its portfolio of wind and solar farms today.
I’d also buy Greencoat UK Wind and Foresight Solar, two UK-focused renewable energy stocks that specialise in wind and solar assets, respectively. Together with TRIG, these two companies will bring greater diversification to my portfolio.
Mining companies
I’m also considering other ways to bolster my portfolio by increasing my exposure to the renewable energy sector. One way I’d do this is by looking at mining companies. The minerals that these businesses dig up are essential for renewable energy technologies, such as batteries, solar panels and wind turbines.
The first company I’d buy is Rio Tinto which mines products such as copper, lithium and iron ore. According to its website, a 1 MW wind turbine uses a huge three tonnes of copper alone. Rio Tinto has been able to pay a double-digit dividend yield this past year as it benefited from a rise in commodity prices. However, I have to note that these prices can be volatile, so the dividend is being cut this year (to a still impressive 8.5% yield). It does highlight that dividends can be unreliable at times. Nevertheless, I’d still buy Rio Tinto for my portfolio as a long-term investment that should benefit from the growing renewable energy sector.
As well as buying a single mining company (which can be risky), I’d also consider the BlackRock World Mining Trust. This is an investment company focusing on global mining and metals assets. The Trust can buy mining stocks, and also physical metals. It would bring a greater level of diversification to this sector within my portfolio.
Dan Appleby owns shares of London Stock Exchange and Rio Tinto. The Motley Fool UK has recommended Foresight Solar Fund Limited and Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
