The energy sector is changing rapidly as previously dominant fuels such as coal and oil are being replaced by cheaper renewable energy sources. We can also anticipate a significant shift in demand due to the emergence of technological innovations such as electric vehicles. And the disruption is far from over, as renewables and electric vehicles now represent less than 5% of the electricity markets and vehicles sold, respectively.
As this transition from fossil fuels continues, investors will want to bet on which energy technologies will shine the best. As it looks now, Bloom energy (NYSE: BE) Solar power (NASDAQ: SPWR) Star Peak Energy Transition Corp. (NYSE: STPK), and General engines (NYSE: GM) look like they will be leaders in the future of renewable energy.
The emerging hydrogen economy
The hydrogen economy is closer than ever to reality, thanks to companies such as Bloom Energy. The company is building the technology to convert renewable energy into hydrogen that can be stored or transported and then used to generate electricity when and where it is needed.
Bloom’s business has been steadily improving over the past three years, with revenues growing and margins improving as the cost of the fuel cells declines. The company is still reporting losses as it invests in growth, but its operations are on the right track, and if the hydrogen economy takes off, it will be well positioned to benefit.
BE Revenue (TTM) data by YCharts
One product Bloom Energy is currently focusing on could be a game-changer for the company: it is developing an electrolyser that uses electricity from wind or solar energy to produce hydrogen for use in its fuel cells. Management says this clean hydrogen will be cost-competitive compared to fossil fuels, opening the company to a $ 2 trillion energy market. The electrolyser is still in the prototype phase, but commercial operations are expected to begin on a small scale later this year.
There is a lot of uncertainty about the major role that hydrogen will play in the energy market of the future, but as a leader in industrial-scale hydrogen, Bloom Energy is likely to be one of the winners of the segment.
Taking advantage of solar energy
The number of solar power systems deployed around the world continues to grow rapidly, but the industry has had a tough time on investors for the past two decades. However, as the industry gets into a more mature stage, I think SunPower has a strategy that can deliver both profit and growth.
SunPower is essentially a service company for the residential and solar energy market. It has developed tools for selling, offering and installing solar panels and energy storage systems, but does not do most of the installations itself. Instead, it works with dealer partners who provide the boots on the ground for its products.
This gives SunPower an asset-light business model that can leverage plant growth. And the company will play an even more important role as energy storage is rolled out, as it will be able to aggregate the electricity in tens of thousands of individual storage systems and bring those assets into competing electricity markets as virtual power plants.
A unique game in energy storage
Star Peak Energy Transition Corp. is a SPAC that has agreed to merge with pure-play Voice for energy storage. Stem was one of the first leaders in commercial energy storage and will use the $ 383 million in cash that Star Peak Energy adds to its books to fund its growth in markets such as the US, Japan and Canada.
Stem is trying to use what it has learned in building energy storage systems and use it to turn to a more software-as-a-service type of business model. This allows the company to be a power management company rather than just a battery company.
The real value of energy storage is not in making or installing batteries, but in managing where and when the stored energy is used. Stem is a leader in that niche, which is why it’s a great way to bet on the future of energy storage.
Image Source: Cruise.
The next giant in electric vehicles
We all know Tesla currently leads the electric vehicle market, but I think GM offers the greatest EV opportunity for investors today. Management has just announced that the automaker will fully transition its product line to electric vehicles by 2035, and it has already announced attractive electric vehicles such as the Hummer, Bolt and Cadillac Lyriq.
GM also owns a majority stake in Cruise, which develops autonomous vehicle technology. Cruise and GM are working on a fully autonomous driving vehicle that GM will produce and Cruise will manage. This could be an important new growth market.
The old carmaker’s stock is relatively cheap, trading for just 26 times lagging earnings – and that doesn’t take into account the potential value of its stake in Cruise, which on its own is worth perhaps more than $ 23 billion. GM isn’t the biggest name in EVs today, but it could be a decade from now.
The future of energy will be here before you know it
There is no longer any debate as to whether electric vehicles or renewable energy can be viable. They are already profitable and their prices continue to fall, allowing them to increase their market share. While doing so, the companies with the best technology and strongest business models – companies like Bloom Energy, SunPower, Stem, and GM – can be big winners for investors.