5 Highly Rated Stocks That Use Renewable Energy

US renewable energy generation surpassed coal generation for the first time in 2022. The US Energy Information Administration forecasts that US solar power generation will grow 75% from 2023 to 2025, and wind power generation by 11%. In contrast, the EIA forecasts that coal power generation will decline 18% from 2023 to 2025. Powering this demand for renewable energy are corporate climate commitments. Some 45% of Fortune Global 500 companies have climate-related or net zero emissions targets, according to Climate Impact Partners. These decarbonization commitments mean that companies are getting smart about how they invest in renewable energy.

Prices for renewable energy technologies are dropping rapidly. According to the International Renewable Energy Agency, the cost of electricity from solar power fell by 85% between 2010 and 2020, and the costs of onshore and offshore wind energy fell by 56% and 48%, respectively.

These Companies Are Big Renewable Energy Users

We looked at the holdings in the Morningstar North America Renewable Energy Index, which is designed to provide exposure to both users and providers of renewable energy in the Morningstar Developed Markets Americas Index. Sleeve One includes companies that derive at least 5% of revenue from renewable energy. Sleeve Two includes companies that use renewable energy for at least 25% of their energy requirements, as measured by the Morningstar Sustainalytics Sustainable Activities Involvement Metrics. From Sleeve Two, we looked for companies bearing Morningstar Ratings of 4 or 5 stars. All these stocks are undervalued.

Rogers Communications

Rogers Communications RCI is the largest wireless service provider in Canada with its more than 11 million subscribers equating to one third of the total Canadian market. Rogers carries a 5-star rating, has a narrow Morningstar Economic Moat Rating, and is trading at a 32% discount.

In its 2023 Climate Action Report, Rogers reports that approximately 50% of its electricity use was generated from renewable energy sources, which included grid-sourced clean energy and renewable energy pursuant to its virtual power purchase agreement. A VPPA is a type of long-term (10-20 years) energy contract between a developer of a specific energy project and a purchaser who desires renewable energy. Unlike a traditional corporate power purchase agreement, or PPA, with a VPPA, there is no guarantee that Rogers is physically going to consume the renewable energy they pay to produce. Meaning, their operations could potentially be running on “dirty” energy. However, a VPPA is still a strong signal that Rogers has a long-term strategy to source renewable energy and demonstrates the company’s commitment to sustainability.

Estee Lauder

Estee Lauder EL is a leader in the global prestige beauty market, participating across skincare (51% of fiscal 2024 sales), makeup (29%), fragrance (16%), and haircare (4%) categories. Estee Lauder carries a 5-star rating, has a wide moat rating, and is trading at a 50% discount.

Estee Lauder celebrated reaching carbon neutrality and sourcing 100% renewable electricity for its direct operations in 2020. Estee Lauder boasts a strong portfolio of on-site solar arrays, including construction at the following sites: Melville, New York; Markham, Ontario; Petersfield, United Kingdom; Galgenen, Switzerland; and Blaine, Minnesota. On-site renewable energy generation is a very economically and operationally efficient choice as it has the potential to provide electricity cost reduction, utilities budget stability, and carbon emissions reduction. Estee Lauder has also executed additional projects like a VPPA with the Ponderosa wind farm in Beaver County, Oklahoma.

Alphabet

Alphabet GOOG carries a 4-star rating, has a wide moat rating, and is trading at a 21% discount. Alphabet’s expanding cloud computing needs means it must grapple with the corresponding increase in the data center energy consumption. Alphabet has responded to this need through corporate PPAs. PPAs are one of the most optimal renewable energy solutions (behind on-site generation) because the energy purchaser can be sure that the energy they consume comes directly from the renewable energy project they fund, although PPAs are not accessible or available to every company because of consumption requirements and geographic availability.

In 2020, Alphabet set a goal to run on 24/7 carbon-free energy on every grid where they operate, by 2030. From 2010 to 2023, Alphabet signed more than 115 corporate PPAs, totaling over 14 gigawatts of clean energy generation capacity. For example, Alphabet signed a PPA with Ørsted for 150 megawatts from a wind farm project based in Bee County, Texas. It also signed PPAs based in Belgium, the Netherlands, and Australia. In October, Alphabet was among those technology firms that announced nuclear power partnerships with small modular nuclear reactors. Google will sign a contract to purchase nuclear energy from multiple SMRs that Kairos Power, a nuclear technology company, plans to develop.

General Motors

General Motors GM is an American multinational automotive manufacturing company. The company regained its US market share leader crown in 2022, after losing it to Toyota TM owing to the chip shortage in 2021. Its share in 2023 was 16.5%. General Motors carries a 4-star rating, has no moat rating, and is trading at a 30% discount.

In August 2024, General Motors signed a landmark solar power deal for three assembly plants. The 15-year PPA with NorthStar Clean Energy’s solar project in Newport, Arkansas, will provide up to 180 megawatts of electricity to GM’s Lansing Delta Township Assembly and Lansing Grand River Assembly in Michigan, and the Wentzville Assembly site in Missouri by adding renewable energy directly to the grid those sites source from. This is the company’s largest power purchase deal yet and an important milestone in its goal to be carbon neutral by 2040. General Motors also sources renewable energy in other countries, including Brazil. In 2022, General Motors announced that it had finalized the energy sourcing agreements required to secure 100% of the energy needed to power all US sites with renewable electricity by the end of 2025.

Microsoft

Microsoft MSFT develops and licenses consumer and enterprise software and is flexing its artificial intelligence leadership to strengthen an already-wide moat rating. Microsoft carries a 4-star rating and is trading at a 13% discount.

According to Morningstar senior equity analyst Dan Romanoff, Microsoft is one of the two public cloud providers that can deliver a wide variety of platform-as-a-service/infrastructure-as-a-service solutions at scale. Based on its investment in OpenAI, Microsoft has also emerged as a leader in AI. With Azure as its new centerpiece, the question of energy procurement for energy-intensive data centers is top of mind. In May 2024, Microsoft signed a five-year agreement with Brookfield Asset Management BAM and Brookfield Renewable Partners BEP for the development of over 10.5 gigawatts of new renewable energy capacity between 2026 and 2030—almost 8 times larger than the largest single corporate PPA ever signed. In September 2024, Constellation Energy CEG announced the signing of a 20-year PPA with Microsoft that will help restart a unit of its Three Mile Island nuclear plant in Pennsylvania, which shut down in 2019 owing to economic reasons.

Strong performing stocks in the Morningstar North America Renewable Energy Index are leaders and early movers in securing renewable energy capabilities amid a shifting energy landscape. Investors should be on the lookout for energy trends that may impact their portfolios.

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