Three clean energy stocks for your portfolio

The world is at a tipping point. US president Joe Biden’s bold environmental plan is reinvigorating international efforts to fight climate change, while major economies from Europe to China have pledged to invest trillions of dollars to achieve their ambitious net-zero carbon goals.

Renewed policy momentum comes at a crucial time for the clean-energy industry. Thanks to advances in technology, many renewable energy sectors are now beginning to achieve economies of scale unthinkable just a few years ago and have consequently become cost-competitive with fossil fuels.

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Gearing up the grid

The cost of producing renewable electricity has fallen sharply in the past few years, enabling solar and wind power to dethrone fossil fuels. But investing in the energy transition is not just about solar panels and wind turbines.

This is because cheap and abundant renewable energy is of no use unless it’s delivered to where it’s needed, day and night, without fail. This is where the power grid comes into play.

Companies such as ENEL (Milan: ENEL), Italy’s sustainable-energy operator, are developing advanced transmission infrastructure that would allow the grid to integrate a growing share of renewables. Electric vehicles (EVs) are also crucial to the pursuit of a carbon-free economy. Thanks to this year’s breakneck rally in its stock price, Tesla may have become the poster-child for the transition to zero-emission transport.

A green light for electric vehicles

But the green-car revolution isn’t just about Tesla. It is as much about the vast array of technologies, such as lighter, longer-lasting batteries and ultra-rapid chargers, without which electrification would be impossible.

New semiconductors also play a significant role in accelerating the adoption of e-mobility. Manufacturers of these chips, such as NXP Semiconductors (Nasdaq: NSPI), should benefit from strong margin growth in a complex industry with high barriers to entry.

NXP is a Dutch firm generating strong free cash flows and margin growth. Sales are set to grow by an annual 20% between 2020 and 2022 and earnings per share by 40% a year in the same period.

Boosting efficiency by reducing demand

A more sustainable economy is also based on reducing demand for energy in the first place – especially from heavy consumers such as manufacturers.

ANSYS (Nasdaq: ANSS) is a company that helps industrial manufacturers simulate prototypes and products through highly complex software.

The use of advanced software not only reduces the materials, energy, time and cost needed for product development, but also optimises the final product in terms of resource and energy efficiency.

Given the complexity in this field, ANSYS enjoys structurally high margins as well as strong free cash generation.

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