Renewable energy stocks jump up to 500% in 1 year; what’s fuelling this rise? What should you buy from the sector?

Some renewable energy stocks, such as Inox Wind Energy and KPI Green Energy, have surged 450-500 per cent over the last year. Some others, such as SRM Energy, SJVN, JP Power Ventures and Adani Power have jumped 200-350 per cent in the same period. There are over 15 stocks in the renewable energy space that have jumped more than 100 per cent in the last one year.

What explains this steep rise in renewable energy stocks?

Renewable energy as a sector is witnessing strong tailwinds. As the world is moving full throttle towards the goal of zero carbon emissions, so is India.

India has set an ambitious goal of having 50 per cent of its electricity generation from non-fossil fuels by 2030. By 2070, India wants to achieve the goal of 'net zero' and for that, it has drawn up plans to aggressively focus on clean energy.

Strong government support for decarbonisation strategy goals is an important factor that has raised investors' interest in the sector.

Sehul Bhatt, Director– Research, CRISIL Market Intelligence and Analytics, pointed out that the government has provided direct capital subsidies (especially for solar rooftop, storage and hydro), created dedicated nodal agencies (such as Solar Energy Corporation of India, Indian Renewable Energy Development Agency, Power Finance Corporation, REC and International Solar Alliance) and added solar supply chain to Production Linked Incentive (PLI) scheme.

The government has also taken proactive measures to solve the challenges the sector is facing.

The government’s continuous monitoring of the sector and measures taken to establish the required infrastructure (40 GW solar park initiative, 500 GW RE integration, Green Energy Corridor) indicate the criticality of the sector, Bhatt said.

A long-term growth story?

Experts are positive about the renewable energy space for the long term.

Renewable energy is expected to remain a focus of the new government after the Lok Sabha election. The Bharatiya Janata Party (BJP), in its Lok Sabha election manifesto 'Sankalp Patra,' emphasized that India will achieve energy independence by 2047 and the government will harness India's renewable energy potential.

"We will achieve energy independence for Bharat by 2047 and reduce petroleum imports through a mix of electric mobility, network of charging stations, renewable energy production and improving energy efficiency," the BJP manifesto says.

"We will harness Bharat’s renewable energy potential, targeting 500 GW of renewable energy through the establishment of mega solar parks, wind parks and the Green Energy Corridor project among others."

Deepak Jasani, Head of Retail Research at HDFC Securities believes the policy continuity indicated in the BJP manifesto will bring in greater clarity, scale and confidence among the business community and investors – both global and local.

"We may witness greater aggression in execution and new reform measures from the new government. Although the results of these measures may time to fructify, the markets tend to discount the triggers in advance. The GDP and in turn corporate profitability may grow at a faster pace and the valuations also may nudge up a bit reflecting greater visibility of sales and profitability growth," said Jasani.

According to Bhatt of CRISIL, by 2030, India will likely have a non-fossil installed base of 510-520 GW, forming 60-65 per cent of total power capacity and 45-47 per cent of electricity generation. That will be 2.5-3 times in terms of installed capacity base and 2.5-3 times the share in electricity generation from the current level.

Renewable energy stocks to buy

The outlook for the renewable energy sector appears attractive from a medium to long-term perspective due to strong government initiatives such as favourable incentives, cheaper financing options and ease of setting up of business in the sector.

Manish Chowdhury, Head of Research at StoxBox underscored that robust power demand from end-users which is expected to grow at 8 per cent per annum in the near future and increasing awareness about the environment are additional tailwinds for the sector.

"With an expected addition of about 40 GW cumulatively in the renewable sector over the next two years, we sense that companies across the value chain should benefit from this trend. We remain positive on SJVN and Sterling & Wilson Solar and expect about 20 per cent returns from a 12-month timeframe," said Chowdhury.

Pravesh Gour, Senior Technical Analyst, Swastika Investmart is of the view that companies specialising in solar power, wind energy, and energy storage solutions have benefited from favourable government policies and increasing environmental awareness.

“Long-term investors can take positions in stocks like Tata Power, Waaree Renewables, Reliance, etc.,” said Gour.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.