Canadian renewable utility stocks have soared this year as investors bet on a global expansion of cleaner power, abandoning oil and gas stocks that have plummeted because of pandemic travel restrictions.
The election of Democrat Joe Biden as U.S. president this month has raised potential for a robust U.S. renewables plan to fight climate change. If Congress remains divided after run-off elections in Georgia in January, however, Mr. Biden may face greater obstacles.
Canadian renewables have become a landing spot for investors looking for wind, solar and hydro plays.
“They recognize oil and gas is a sunset sector. It’s not going away anytime soon, but they don’t expect any growth long-term,” said Tim Nash, a Toronto financial planner focusing on sustainable investments.
Such moves have rewarded investors in an otherwise volatile year, but Brookfield Renewable Partners LP and Algonquin Power & Utilities Corp. have surpassed analysts' average price target, suggesting they do not expect further near-term gains.
Others, such as Innergex and Boralex, have gained more than 30 per cent and 50 per cent, respectively, even though they lost money last year.
Oil stocks, by contrast, plummeted this year before recent vaccine breakthroughs, with the S&P/TSX energy index down more than 40 per cent.
“[Oil’s] headwinds are largely tailwinds for the renewables space,” TD Securities analyst Menno Hulshof said.
Many renewables have the bulk of their electricity-producing operations outside Canada. They are likely to grow at similar or higher rates than global peers, CIBC analysts said on Oct. 13.
Some are making deals with the oil companies investors are shunning.
In July, U.S. oil major Chevron Corp. and Ontario-based Algonquin struck a four-year deal to develop renewable power for Chevron operations in the U.S. Permian Basin.
Algonquin, which is both a conventional utility and green energy producer, hopes to strike similar deals with other oil producers who are attracted to renewable power’s falling costs, said chief executive Arun Banskota.
“The most important of all the drivers [behind renewables] are the economics,” Mr. Banskota said in an interview.
Such partnerships interest Canadian Natural Resources Ltd., said Tim McKay, president of Canada’s largest crude producer.
“We look at all sorts of opportunities and those would be some of them,” Mr. McKay said, declining to comment on whether he is holding any specific talks. “If you could have renewable power and reduce your environmental footprint, that would be very complementary to our business.”
Northland Power is looking to expand in offshore wind, possibly through joint ventures with oil companies, CEO Mike Crawley said.
“We’re trying to turn that wave of capital, including from oil and gas majors, that’s coming into renewables and particularly offshore wind to our advantage,” Mr. Crawley said.
Rising interest among oil majors and conventional utilities crowd may mean increased competition.
The scale of opportunity is great enough, however, to absorb new competitors, said Wyatt Hartley, Brookfield’s chief financial officer. He pointed to pledges this year by corporations such as e-commerce giant Amazon.com Inc. to become carbon-neutral.
Renewables could become takeover targets by oil majors looking to acquire a green portfolio, adding to their upside, said Robert McWhirter, president of Selective Asset Management, whose holdings include Boralex and Northland.
Many Canadian companies have established operations in growing markets such as Europe, the United States and South America, Innergex CEO Michel Letellier said.
“We’ve been able to prove we can compete on an international basis,” he said.
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