Investing in ASX renewable energy shares

Investing in ASX renewable energy shares

Renewable energy companies provide an alternative to fossil fuels and help reduce the negative impacts of climate change. In this article, we’ll look at how to invest in ASX renewable energy stocks and why they may be worth considering for your share portfolio.

light bulb surrounded by green hydrogen and renewable energy icons
Image source: Getty Images

What are ASX renewable energy shares?

Renewable energy (often also called ‘green energy’) comes from sources that are not depleted as they are consumed. They provide an alternative to traditional fossil fuels like coal, crude oil, and natural gas. Renewables include energy sources such as solar, wind, and geothermal.

Fossil fuels are formed from the fossilised remains of plants and animals (hence the name ‘fossil fuels’) in a geological process that takes hundreds of millions of years. This effectively makes them a finite resource for humanity. Once we’ve dug the last ounce of coal up out of the ground, that’s it – none of us will be around long enough to see its stores replenished.

Because of their high carbon content, fossil fuels release large amounts of carbon dioxide into the atmosphere when they are burned for energy. Carbon dioxide is a greenhouse gas, and the more of it present in our atmosphere, the more damaging the potential impacts of climate change.

For these two important reasons, many energy companies have started to transition to renewable sources of energy. And, at the same time, a whole range of junior energy companies have emerged, hoping they can offer a viable alternative to the legacy fossil fuel industry.

This class of ASX shares is referred to broadly as renewable energy shares. It is an umbrella term encompassing a wide range of companies, from Origin Energy Ltd, which still sources the majority of its energy from fossil fuels but is expanding into wind and solar, to Mercury NZ Ltd, a New Zealand-based company that already generates 100% of its energy from renewables.

Some might even argue that the term should encompass all companies on the green energy supply chain, even miners like Pilbara Minerals Ltd (ASX: PLS) that produce the lithium needed for the batteries in electric-powered vehicles. However, we’ll focus explicitly on energy providers in this article.

Why invest in ASX renewable energy stocks?

Environment, social, and (corporate) governance (ESG) investing has become a new super-trend in finance. ESG is a type of investing that prioritises a company’s environmental and social impacts alongside its profits. ESG investors seek out companies that act ethically and have adopted environmentally-sustainable business practices.

In fact, demand for these types of shares has run so hot that many investment funds have been set up that invest exclusively in companies with a solid ESG framework. And there are now even ASX exchange-traded funds (ETFs) that everyday investors can easily buy – like the BetaShares Global Sustainability Leaders ETF (ASX: ETHI) – that screen out stocks that do not meet certain ESG-related criteria.

These social trends have fuelled (pardon the pun!) massive interest in green energy shares. Renewables may even develop into one of the major investing themes of the next decade (or more!). So, if the warm fuzzy feeling you get from saving the environment isn’t reason enough for you to buy renewable energy shares, how about the fact that doing so may help boost your portfolio's long-term returns?

5 top renewable energy share performers in FY22

(based on market capitalisation from high to low)

Company Market capitalisation Description
Origin Energy Ltd (ASX: ORG) $11.8 billion Major Australian energy producer
increasing its renewables capacity
Meridian Energy Ltd (ASX: MEZ) $11.3 billion New Zealand’s largest energy producer,
using 100% renewable sources
Mercury NZ Ltd (ASX: MCY) $7.6 billion Another New Zealand-based green energy
provider that also uses 100% renewables
Infratil Ltd (ASX: IFT) $5.4 billion New Zealand-based infrastructure investment
company that owns green energy assets
Genesis Energy Ltd (ASX: GNE) $2.8 billion Leading New Zealand electricity and
gas retailer, partly using renewables

Empty heading

Origin Energy 

It might seem odd to see Origin on this list, considering it operates Australia’s largest coal-fired power plant at Lake Macquarie, New South Wales. However, it also has a growing portfolio of green energy assets. Once the remaining projects it currently has under development come online, 25% of its energy capacity will be from renewables. It even recently proposed accelerating its exit from coal-fired generation by giving an early retirement to one of its NSW plants, Eraring (it will still be operational until August 2025, though).

Origin has more than a decade’s experience in solar energy and is one of Australia’s leading installers of home solar panels. It has purchase agreements with several major solar farms, including an exclusive deal to buy all the energy produced by the 110 MW Darling Downs Solar Farm until 2030.

Origin also buys power from many wind farms located across the southeast of Australia, including the Stockyard Hill Wind Farm west of Ballarat, Victoria.

Key metrics:

  • Market cap: $11.8 billion (as of 30 April 2022)
  • Average daily volume: 9.9 million
  • Headquarters: Sydney, NSW

Meridian Energy

Meridian is New Zealand’s biggest power generator, with 100% of its energy coming from renewable sources. This makes it more of a ‘pure play’ on the green energy trend than a company like Origin.

Meridian owns five wind farms, seven hydropower stations, and many commercial solar arrays. These are solar panels erected on the roofs of commercial sites – many of which Meridian itself maintains, selling the power back to the businesses occupying those sites. 

It also owns the largest hydropower station in New Zealand, the 122 MW Manapouri hydro station located underground in the picturesque Fiordland National Park, a UNESCO World Heritage site in New Zealand’s South Island.

Key metrics:

  • Market cap: $11.3 billion (as of 30 April 2022)
  • Average daily volume: 39,000
  • Headquarters: Wellington, New Zealand

Mercury NZ

Another New Zealand entrant on the list, Mercury sources 100% of its energy from renewables. The company owns nine hydro stations along the Waikato River in New Zealand’s North Island, which together supply 10% of the country’s electricity annually.

In addition to its existing four wind farms, Mercury is building what will soon be New Zealand’s largest such facility, the Turitea Wind Farm, located near Palmerston North.

On top of its hydro and wind assets, Mercury also has five geothermal plants in New Zealand’s North Island. These plants work by piping hot water and steam trapped in underground reservoirs up to the surface, where the hot air drives turbine generators, creating electricity.  

Key metrics:

  • Market cap: $7.6 billion (as of 30 April 2022)
  • Average daily volume: 11,000 
  • Headquarters: Auckland, New Zealand

Infratil

Despite being another New Zealand-based company, Infratil is a bit of an outlier on this list. It is an infrastructure investment company that invests in businesses in growth sectors of the economy, with a heavy focus on renewables, airports, healthcare, and digital infrastructure.

About 21% of its portfolio is made up of renewables and includes New Zealand hydroelectricity company Trustpower Ltd and green energy project developers servicing North America, Europe, and Asia.

Infratil doesn’t always hold on to these assets, though – as it showed in 2021 when it sold its 65% stake in Tilt Renewables for a shade under NZ$2 billion, of which NZ$965 million was booked as a gain.

Key metrics:

  • Market capitalisation: $5.4 billion (as of 30 April 2022)
  • Average daily volume: 16,000 
  • Headquarters: Wellington, New Zealand

Genesis Energy

Rounding out the list is yet another New Zealand energy company. Genesis is a leading gas and electricity retailer based in Auckland, with an energy portfolio comprising both renewable and fossil fuel assets.

It owns the largest capacity electricity plant in New Zealand, the gas and coal-fired Huntly Power Station on the North Island, and a significant interest in an oil and gas joint venture. However, it also owns eight green energy hydropower stations located across New Zealand, with six on the North Island and two on the South Island.

Key metrics:

  • Market cap: $2.8 billion (as of 30 April 2022)
  • Average daily volume: 29,000
  • Headquarters: Auckland, New Zealand

Are ASX renewable energy stocks right for you?

Buying renewable energy stocks can make you feel good about where you’re putting your money. These companies are actively helping to mitigate the impact of climate change by reducing society’s reliance on fossil fuels as a source of energy. That’s a pretty good cause to put your money behind!

And with investors only becoming more and more concerned about how their investments impact society and the environment, demand for ethical shares (like renewable energy shares) is on the increase. That means an investment in green energy shares could also increase the overall long-term performance of your portfolio!

However, the usual caveats apply: Always do your research and understand the risks involved in any investment. And make sure that an investment in renewable energy shares complements the rest of your portfolio and aligns with your investing goals.

Last updated May 2022. Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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