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With 24 percent of its energy coming from renewable sources, Australia is a country to watch when it comes to renewable energy. Here's how investors can get involved.
As cultures, political movements and scientific advancements shift, the world is becoming increasingly interested in the rapidly growing renewable energy sector.
In Australia, the generation of renewable energy has risen sharply, increasing from less than 20,000 gigawatt hours in 1999 to 2020's more than 60,000 gigawatt hours.
Clearly the Australian renewable energy sector is on the rise. So how should a prudent investor navigate the industry's different opportunities? And what are the ways to approach such investment opportunities?
Renewable energy in Australia: What is renewable energy?
Renewable energy comes from natural processes, such as wind currents or moving water. It replenishes at a rate equal to or greater than its consumption, and is not used up in the same way that fossil fuels are depleted. For example, a wind turbine turns with the wind, and does not burn up the wind used to generate power.
There are many types of renewable energy. The most widely used source of renewable energy worldwide is hydro power —16.8 percent of the world's power is hydro. Wind and solar power are also very popular. There are many other sources as well, including geothermal, biomass, biogas and liquid biofuels. Solar panels absorb heat from the sun and convert it to power, while water wheels and wind turbines turn kinetic energy into electricity; for its part, geothermal power uses natural hot water sources to employ the Earth itself as a steam engine.
All in all, renewable energy is a relatively new concern. Initially efforts to capitalize on such sources were a struggle — early solar panels lacked efficiency, for instance, although hydroelectric power is an exception and has long been used by governments to augment their citizens' energy needs.
The world is taking more and more notice of renewable energy. Deals made at the United Nations, such as the Paris Agreement, which was adopted in December 2015, have instituted legally binding target numbers for lowered emissions, and a big part of the execution of those goals will be renewable energy sources.
Consequently, it is only a matter of time before the renewable energy sector grows exponentially larger. The need and demand for clean energy is rising quickly. In fact, it is hard to conceive of a world where clean energy from renewable sources is not emphasized more and more every year.
Renewable energy in Australia: How to invest
As of 2020, 24 percent of Australia's energy generation came from renewable sources. The largest sources of renewable energy in Australia are solar and wind, each accounting for approximately 9 percent of the country's energy sources (and 35 percent each of the renewable energy total). Hydro energy has remained mostly steady in terms of its overall percentage of energy generated, whereas solar and wind have been on the climb. Biomass and geothermal sources are still comparatively low in terms of percentage of generated power.
There are many utilities companies listed on the ASX that are investing in renewable energy sources. Here's a look at the five largest of them based on market capitalisation. Data was retrieved on March 31, 2022, using TradingView's stock screener, and companies are listed in descending order from largest to smallest.
1. Meridian Energy
Market cap: AU$11.83 billion; current share price: AU$4.81
Listed both in both New Zealand and Australia, Meridian Energy (ASX:MEZ) is New Zealand’s largest electricity generator through its five wind farms, seven hydro power stations and commercial solar arrays. All the electricity supplied to the company's customers comes from the electricity grid, which mixes electricity supplied from both renewable and non-renewable sources.
2. Origin Energy
Market cap: AU$11.11 billion; current share price: AU$6.23
Origin Energy (ASX:ORG) is an integrated energy company that has both renewable and non-renewable energy output. The company buys wind power from wind farms in Australia and is the nation's largest buyer of utility-scale solar. It also installs solar panels.
Market cap: AU$7.55 billion; current share price: AU$5.21
Mercury (ASX:MCY) has wind farms, solar farms and combination wind-solar farms; it is also developing battery energy storage systems. Battery and power storage capabilities are essential elements for renewable energy.
Market cap: AU$5.85 billion; current share price: AU$7.60
New Zealand-based Contact Energy (ASX:CEN) owns and operates 11 power stations and produces 80 to 85 percent of its electricity from its renewable hydro and geothermal stations.
Market cap: AU$5.57 billion; current share price: AU$7.49
Infrantil (ASX:IFT) is an infrastructure company that invests in energy, transport and social infrastructure, and has renewable investments in Trust Power, Longroad Energy, Gurin Energy and Galileo Green Energy.
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Securities Disclosure: I, Ryan Sero, hold no direct investment interest in any company mentioned in this article.