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Number Cruncher Five utility stocks embracing the carbon-free winds of change

What are we looking for?

The utilities story for investors doesn’t end with enticing dividend yields and the sector’s general outperformance. Today we look for companies taking advantage of new opportunities in renewables.

The screen

The fight against climate change can feel daunting at times, with economics and regulation providing various obstacles to progress. However, the power sector shows encouraging signs. The cost of electricity generation, including operating expenses and capital expenses, over a plant’s lifetime is now lower for solar and wind power than coal, according to The Economist.

Regulators set rates for electricity at a level that covers utility companies’ costs (fuel inputs, for example) and provide a regulated return on capital invested (infrastructure); in the United States, this regulated return is around 10 per cent. The varying prices of fuel inputs are simply passed through to consumers, and a regulated return can’t be earned on spending on fossil fuel inputs. Wind and sunshine, however, are free inputs and a regulated return can be earned on infrastructure investments in wind and solar power generation. The lower input costs result in lower costs for consumers and the utility earns a regulated return on its investment.

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We will look for utility companies that are taking advantage of these trends and would benefit from (potential) further shifts in regulation (such as carbon pricing, for example) and consumer preferences toward renewables. We start with the universe of all utilities – 13,000 globally in the Refinitiv database – and apply the following screens:

  • First, we look at the amount of renewable energy that companies are producing and require an absolute figure of at least 10 million gigajoules annually, and at least a 20-per-cent increase of the past three years.
  • Next, we look at the percentage of total energy produced and distributed that comes from renewable sources and require at least 25 per cent.
  • Finally, we consider a firm’s goals for cutting carbon emissions and require a reduction of at least 20 per cent by no later than 2030.

More about Refinitiv

Refinitiv, formerly the financial and risk business of Thomson Reuters, is one of the largest providers of financial markets data and infrastructure, serving more than 40,000 institutions worldwide. With a dynamic combination of data, insights and technology, as well as news from Reuters, our customers can access solutions for every challenge, including a breadth of applications, tools and content – all supported by human expertise.

What we found

Only five companies passed the screen, including one Canadian entity, Fortis Inc. St. John’s-based Fortis generates more than 55 per cent of its revenue from the United States and recently disclosed some promising figures in its 2019 sustainability update: The average greenhouse gas intensity of electricity delivered in 2018 was less than 25 per cent of what it was in 2015, and its Tucson (Arizona) Electric Power subsidiary is set to meet its 30-per-cent renewable target in 2021, nine years ahead of schedule.

Investors are advised to do their own research before trading in any of the securities shown below.

Select utilities companies

CompanyCountrySymbolMkt. Cap. (US$ Mil.)Renewable Energy Produced (Gigajoules)Renewable Energy 3Y ChgRenewable Energy (Mix of Total)Emission Reduction TargetEmission Reduction Target YearRecent Close *Div. Yld.1Y Rtn.
Sempra EnergyUSASRE-N36,27421,277,444129%47%35%2021132.123.1%17%
Orsted A/SDenmarkORSTED-CO38,78270,200,00079%41%98%2025620.001.8%63%
Iberdrola SASpainIBE-MC61,068222,314,40089%31%50%20308.644.5%43%
Fortis Inc.CanadaFTS-T17,28310,854,00023%29%30%203052.363.6%27%
Nextera EnergyUSANEE-N99,677167,409,95437%25%65%2021208.052.6%25%

Refinitiv

Native currency

Hugh Smith, CFA, MBA is the Manager of Refinitiv’s Investment Management business for the Americas, and is a director on the board of the Responsible Investment Association of Canada.

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