Renewable Energy Stocks Up 500% in a Year; What’s Driving the Rise? What Should You Buy in the Sector?

Some renewable energy stocks like Inox Wind Energy and KPI Green Energy have surged by 450-500 per cent in the past year. Some others like SRM Energy, SJVN, JP Power Ventures and Adani Power have surged by 200-350 per cent in the same period. There are over 15 renewable energy stocks that have surged by over 100 per cent in the past year.

What explains this sharp rise in renewable energy stock prices?

Renewable energy as a sector is experiencing strong tailwinds. While the world is moving full steam ahead towards a zero carbon target, so is India.

India has set itself an ambitious target of generating 50 percent of its electricity from non-fossil fuel sources by 2030. India wants to achieve a net-zero emissions target by 2070 and has laid out plans to aggressively focus on clean energy to achieve this.

An important factor that has increased investor interest in this sector is the government’s strong support for the decarbonisation strategy.

Sehul Bhatt, Research Director at CRISIL Market Intelligence and Analytics, highlighted that the government has provided direct capital subsidies (especially for rooftop solar, energy storage and hydropower), 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 the solar supply chain to the Production Linked Incentive (PLI) scheme.

The government has also taken proactive steps to address the issues facing the sector.

The government’s continuous monitoring of the sector and steps taken to create the necessary infrastructure (40 GW solar park initiative, 500 GW renewable energy integration, Green Energy Corridor) indicate the critical importance of this sector, Bhatt said.

Long-term growth story?

Experts are optimistic about the renewable energy sector in the long term.

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

“By 2047, we will achieve energy independence for India and reduce oil imports through a combination of electromobility, a network of charging stations, renewable energy production and improved energy efficiency,” the BJP manifesto states.

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

Deepak Jasani, head of retail research at HDFC Securities, feels that the policy continuity mentioned in the BJP manifesto will bring in more transparency, scale and confidence among the business community and investors – both global and local.

“We may see more aggressive implementation and new reforms from the new government. While the results of these efforts may prove fruitful over time, markets tend to discount upfront triggers. GDP, and consequently corporate profitability, may grow at a faster pace and valuations may also see a modest increase, reflecting greater visibility into sales growth and profitability,” Jasani said.

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

Renewable Energy Stocks to Buy

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

Manish Chowdhury, head of research at StoxBox, highlighted that the strong demand for electricity from end users, which is expected to grow by 8% annually in the near future, and growing environmental awareness are major factors supporting the sector.

“With a combined addition of around 40 GW in renewables expected over the next two years, we believe companies across the value chain should benefit from this trend. We continue to have a positive view of SJVN and Sterling & Wilson Solar and expect returns of around 20 percent over the next 12 months,” Chowdhury said.

Pravesh Gour, senior technical analyst at Swastika Investmart, believes that companies specialising in solar, wind and energy storage solutions have benefited from favourable government policies and growing environmental awareness.

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

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