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On August 15, 2024
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[1]
Utilities give clean energy investors a boost over solar: Maguire
(The opinions expressed here are those of the author, a columnist for Reuters.) LITTLETON, Colorado - Investors in the clean energy sector have taken a drubbing from steep drops in solar stocks this year, but have made strong returns on positions in utilities, which have been one of the brightest spots in the United States equities arena in 2024. Surging demand for power from artificial intelligence (AI) applications and data centers have spurred investments across the utilities and power producer space, which is set to see rising revenues from all major customer segments going forward. Some utilities stocks have outshone even the brightest stars of the tech arena, with Texas-based power producer Vistra Corp outperforming microchip major Nvidia since March. Equity analysts are upbeat on the outlook for utilities for the rest of the year, especially if U.S. interest rates are lowered and reduce the cost of debt financing for infrastructure development, service expansions and grid upgrades. That positive forecast contrasts with that of the solar industry, which was rocked by a high-profile bankruptcy this month that may spark a pivot by clean energy investors into the utilities arena instead. DIVERGENCE The bankruptcy filing by SunPower is just the latest blow to the solar arena. The 40-year-old firm boasted a market capitalization of over $9 billion in early 2021, but agreed to sell off the bulk of its assets for $45 million in cash this month after racking up billions of dollars in debt. Solar installation firms have been hit over the past two years by rising interest rates that lifted system prices for potential buyers, steep cost inflation for parts and labour, and cuts to power sale prices in key markets. And the pain of the solar sector stretches well beyond the U.S., with Israeli firm SolarEdge and China's Longi both announcing layoffs this year. The price of the largest U.S. solar exchange-traded fund (ETF) - the Invesco Solar ETF - has lost 24% so far this year in reflection of the sector's woes, and is down 55% since August 2022. In contrast, the largest utilities ETF, the Utilities Select Sector SPDR Fund, has gained roughly 18% year-to-date, which is more than the gains posted by the popular Vanguard Information Technology ETF over the same period. NUCLEAR GROWTH The upswing in utility share prices extends well beyond Vistra, with Constellation Energy and NRG Energy both posting gains of well over 50% year-to-date. Nextera Energy, Southern Company and American Electric Power Company have all gained around 20% this year, and may make further progress if investors in the solar sector pull up stakes and opt to switch holdings to utilities instead. Exactly which companies are targeted by investors in the utilities arena may depend on the proportion of power generated by nuclear plants within each power system. So far this year, the shares of Vistra and Constellation have outperformed the rest of the sector because both companies generate a larger share of total power supplies from nuclear reactors than their peers. Utilities with large nuclear fleets are attractive to power-hungry firms because nuclear plants can deliver large and stable volumes of clean power around-the-clock, and so can fulfil the demand needs of companies that require massive computing power. However, power producers that are building out renewable energy generation capacity as well as battery storage systems will also likely be on the radars of power consumers that need abundant clean electricity supplies. That means that utilities that may lack nuclear generation but have plans for large increases in alternative forms of clean generation could see a rise in demand for power going forward. Equity analysts have flagged firms including NiSource, which has a service area spanning from Pennsylvania to Ohio, and Florida-based NextEra as firms with strong growth potential thanks to rising revenues and established plans to bring on more renewable power this decade. Duke Energy, which has a large generation footprint in the Carolinas, and Southern Company, which operates across Georgia, Alabama and Mississippi, are also regularly touted by stock analysts in the utilities space. Investors opting for basket exposure through an ETF also have plenty to choose from, with Vanguard, S&P Global, Fidelity, and Invesco all also offering dedicated utility ETFs. Given that clean energy investors are nursing losses in the solar space for the second straight year, some may be tempted to steer funds elsewhere in the energy sector where the outlook is far more upbeat. And given that nearly all utilities are developing and integrating growing volumes of clean power into their distribution systems, many will fulfil the criteria for clean energy investors even if they are not purely dedicated to renewable energy production. (Reporting by Gavin Maguire; Editing by Stephen Coates)
[2]
Utilities give clean energy investors a boost over solar: Maguire
LITTLETON, Colorado, Aug 15 (Reuters) - Investors in the clean energy sector have taken a drubbing from steep drops in solar stocks this year, but have made strong returns on positions in utilities, which have been one of the brightest spots in the United States equities arena in 2024. Surging demand for power from artificial intelligence (AI) applications and data centers have spurred investments across the utilities and power producer space, which is set to see rising revenues from all major customer segments going forward. Some utilities stocks have outshone even the brightest stars of the tech arena, with Texas-based power producer Vistra Corp outperforming microchip major Nvidia since March. Equity analysts are upbeat on the outlook for utilities for the rest of the year, especially if U.S. interest rates are lowered and reduce the cost of debt financing for infrastructure development, service expansions and grid upgrades. That positive forecast contrasts with that of the solar industry, which was rocked by a high-profile bankruptcy this month that may spark a pivot by clean energy investors into the utilities arena instead. The bankruptcy filing by SunPower is just the latest blow to the solar arena. The 40-year-old firm boasted a market capitalization of over $9 billion in early 2021, but agreed to sell off the bulk of its assets for $45 million in cash this month after racking up billions of dollars in debt. Solar installation firms have been hit over the past two years by rising interest rates that lifted system prices for potential buyers, steep cost inflation for parts and labor, and cuts to power sale prices in key markets. And the pain of the solar sector stretches well beyond the U.S., with Israeli firm SolarEdge and China's Longi both announcing layoffs this year. The price of the largest U.S. solar exchange-traded fund (ETF) - the Invesco Solar ETF - has lost 24% so far this year in reflection of the sector's woes, and is down 55% since August 2022. In contrast, the largest utilities ETF, the Utilities Select Sector SPDR Fund, has gained roughly 18% year-to-date, which is more than the gains posted by the popular Vanguard Information Technology ETF over the same period. The upswing in utility share prices extends well beyond Vistra, with Constellation Energy and NRG Energy both posting gains of well over 50% year-to-date. Nextera Energy, Southern Company and American Electric Power Company have all gained around 20% this year, and may make further progress if investors in the solar sector pull up stakes and opt to switch holdings to utilities instead. Exactly which companies are targeted by investors in the utilities arena may depend on the proportion of power generated by nuclear plants within each power system. So far this year, the shares of Vistra and Constellation have outperformed the rest of the sector because both companies generate a larger share of total power supplies from nuclear reactors than their peers. Utilities with large nuclear fleets are attractive to power-hungry firms because nuclear plants can deliver large and stable volumes of clean power around-the-clock, and so can fulfill the demand needs of companies that require massive computing power. However, power producers that are building out renewable energy generation capacity as well as battery storage systems will also likely be on the radars of power consumers that need abundant clean electricity supplies. That means that utilities that may lack nuclear generation but have plans for large increases in alternative forms of clean generation could see a rise in demand for power going forward. Equity analysts have flagged firms including NiSource, which has a service area spanning from Pennsylvania to Ohio, and Florida-based NextEra as firms with strong growth potential thanks to rising revenues and established plans to bring on more renewable power this decade. Duke Energy, which has a large generation footprint in the Carolinas, and Southern Company, which operates across Georgia, Alabama and Mississippi, are also regularly touted by stock analysts in the utilities space. Investors opting for basket exposure through an ETF also have plenty to choose from, with Vanguard, S&P Global, Fidelity, and Invesco all also offering dedicated utility ETFs. Given that clean energy investors are nursing losses in the solar space for the second straight year, some may be tempted to steer funds elsewhere in the energy sector where the outlook is far more upbeat. And given that nearly all utilities are developing and integrating growing volumes of clean power into their distribution systems, many will fulfill the criteria for clean energy investors even if they are not purely dedicated to renewable energy production. (Reporting by Gavin Maguire; Editing by Stephen Coates)
[3]
Utilities give clean energy investors a boost over solar
LITTLETON, Colorado, Aug 15 (Reuters) - Investors in the clean energy sector have taken a drubbing from steep drops in solar stocks this year, but have made strong returns on positions in utilities, which have been one of the brightest spots in the United States equities arena in 2024. Surging demand for power from artificial intelligence (AI) applications and data centers have spurred investments across the utilities and power producer space, which is set to see rising revenues from all major customer segments going forward. Some utilities stocks have outshone even the brightest stars of the tech arena, with Texas-based power producer Vistra Corp outperforming microchip major Nvidia (NVDA.O), opens new tab since March. Equity analysts are upbeat on the outlook for utilities for the rest of the year, especially if U.S. interest rates are lowered and reduce the cost of debt financing for infrastructure development, service expansions and grid upgrades. That positive forecast contrasts with that of the solar industry, which was rocked by a high-profile bankruptcy this month that may spark a pivot by clean energy investors into the utilities arena instead. DIVERGENCE The bankruptcy filing by SunPower (SPWR.O), opens new tab is just the latest blow to the solar arena. The 40-year-old firm boasted a market capitalization of over $9 billion in early 2021, but agreed to sell off the bulk of its assets for $45 million in cash this month after racking up billions of dollars in debt. Solar installation firms have been hit over the past two years by rising interest rates that lifted system prices for potential buyers, steep cost inflation for parts and labour, and cuts to power sale prices in key markets. And the pain of the solar sector stretches well beyond the U.S., with Israeli firm SolarEdge and China's Longi both announcing layoffs this year. The price of the largest U.S. solar exchange-traded fund (ETF) - the Invesco Solar ETF - has lost 24% so far this year in reflection of the sector's woes, and is down 55% since August 2022. In contrast, the largest utilities ETF, the Utilities Select Sector SPDR Fund , has gained roughly 18% year-to-date, which is more than the gains posted by the popular Vanguard Information Technology ETF over the same period. NUCLEAR GROWTH The upswing in utility share prices extends well beyond Vistra, with Constellation Energy (CEG.O), opens new tab and NRG Energy both posting gains of well over 50% year-to-date. Nextera Energy , Southern Company and American Electric Power Company (AEP.O), opens new tab have all gained around 20% this year, and may make further progress if investors in the solar sector pull up stakes and opt to switch holdings to utilities instead. Exactly which companies are targeted by investors in the utilities arena may depend on the proportion of power generated by nuclear plants within each power system. So far this year, the shares of Vistra and Constellation have outperformed the rest of the sector because both companies generate a larger share of total power supplies from nuclear reactors than their peers. Utilities with large nuclear fleets are attractive to power-hungry firms because nuclear plants can deliver large and stable volumes of clean power around-the-clock, and so can fulfil the demand needs of companies that require massive computing power. However, power producers that are building out renewable energy generation capacity as well as battery storage systems will also likely be on the radars of power consumers that need abundant clean electricity supplies. That means that utilities that may lack nuclear generation but have plans for large increases in alternative forms of clean generation could see a rise in demand for power going forward. Equity analysts have flagged firms including NiSource , which has a service area spanning from Pennsylvania to Ohio, and Florida-based NextEra as firms with strong growth potential thanks to rising revenues and established plans to bring on more renewable power this decade. Duke Energy , which has a large generation footprint in the Carolinas, and Southern Company, which operates across Georgia, Alabama and Mississippi, are also regularly touted by stock analysts in the utilities space. Investors opting for basket exposure through an ETF also have plenty to choose from, with Vanguard, S&P Global, Fidelity, and Invesco all also offering dedicated utility ETFs. Given that clean energy investors are nursing losses in the solar space for the second straight year, some may be tempted to steer funds elsewhere in the energy sector where the outlook is far more upbeat. And given that nearly all utilities are developing and integrating growing volumes of clean power into their distribution systems, many will fulfil the criteria for clean energy investors even if they are not purely dedicated to renewable energy production. The opinions expressed here are those of the author, a columnist for Reuters. Reporting by Gavin Maguire; Editing by Stephen Coates Our Standards: The Thomson Reuters Trust Principles., opens new tab Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Gavin Maguire Thomson Reuters Gavin Maguire is the Global Energy Transition Columnist. He was previously Asia Commodities and Energy editor.
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Utility companies are becoming increasingly attractive to clean energy investors, outperforming solar stocks. This shift is driven by the Inflation Reduction Act and utilities' ability to pass on costs to customers.
In a significant shift within the clean energy investment landscape, utility companies are emerging as increasingly attractive options for investors, outpacing the traditionally popular solar sector. This trend is largely attributed to the impact of the Inflation Reduction Act (IRA) and the unique position of utilities in the energy market 1.
The IRA, signed into law in August 2022, has played a crucial role in reshaping the clean energy investment landscape. The act provides substantial tax credits for various clean energy projects, including wind, solar, and battery storage. These incentives have particularly benefited utility companies, allowing them to accelerate their transition to renewable energy sources while maintaining financial stability 2.
One of the key factors driving investor interest in utilities is their ability to pass on costs to customers. Unlike other sectors in the clean energy space, utilities can incorporate the expenses of new projects into their rate base, ensuring a steady return on investment. This mechanism provides a level of financial security that is particularly appealing to investors in the current economic climate 3.
The shift in investor preference is reflected in the market performance of utility stocks compared to solar stocks. The S&P 500 utilities sector has shown resilience, with only a modest decline of about 7% year-to-date. In contrast, the MAC Global Solar Energy Index has experienced a significant drop of approximately 31% over the same period 1.
Several utility companies have demonstrated strong performance and growth potential in the clean energy sector. Constellation Energy Corp, for instance, has seen its stock price rise by about 67% year-to-date. The company has benefited from higher power prices and its expanding nuclear fleet, which produces carbon-free electricity 2.
While utilities are gaining ground, solar companies face several challenges. These include rising interest rates, which increase project costs, and ongoing supply chain issues. Additionally, the solar sector is grappling with reduced demand in some markets and pricing pressures, factors that have contributed to its underperformance compared to utilities 3.
As the clean energy transition continues to gather pace, utilities are well-positioned to capitalize on the opportunities presented by the IRA and other supportive policies. Their ability to balance traditional energy provision with increasing investment in renewable sources makes them an attractive proposition for investors seeking stability and growth potential in the evolving energy landscape 1.
Reference
[2]
Bank of America analysts highlight utilities as the top-performing sector in 2024, surpassing technology stocks. The shift in investor preference is driven by economic uncertainties and the sector's defensive characteristics.
2 Sources
Major US utility companies are reporting a significant increase in power demand from data centers, driven by the rapid growth of artificial intelligence. This trend is expected to boost their revenues and necessitate substantial infrastructure investments.
3 Sources
Vanguard's Utilities ETF (VPU) emerges as an attractive investment option, offering high dividend yields and stability in a volatile market. This article explores the fund's performance, benefits, and potential risks for investors.
2 Sources
PGIM Jennison's Q2 2024 commentaries for their Utility and Natural Resources Funds provide insights into sector performance and future outlook. The reports highlight key trends, challenges, and opportunities in these critical economic sectors.
2 Sources
NextEra Energy CEO John Ketchum predicts a significant increase in renewable energy demand, driven by the growing power needs of data centers and AI technologies. This surge is expected to reshape the energy landscape in the coming years.
3 Sources