The rise of clean energy presents investors with an opportunity
Canada has made it clear that it intends to keep pace with the United States when it comes to clean energy investment and the zero-emissions target. Indeed, with the recent release of its 2023 budget, the federal government has announced several spending allocations and tax credits in an effort to avoid falling behind the U.S. Inflation Reduction Act, which outlined an array of ambitious climate investments when it was launched in August last year.
So, with no shortage of demand in the renewable energy space, this presents investors north of the border with a compelling opportunity, given strong growth prospects for the sector along with favourable government incentives.
Constrained supply in the green energy space is bumping up against ever-growing demand. What this means is that many investors in this space are set to profit as the global economy attempts to close this demand-supply gap – which is needed as many countries ramp up their “greenification” strategies in an effort to meet the ambitious climate targets outlook in the Paris Agreement. In short: Demand for renewable energy will only go up from here.
Canada’s clean energy expenditures, which total $55-billion (roughly in-line with the nearly half a trillion dollars for the U.S. on a population-adjusted basis), provide evidence that the Canadian government is committed to fostering domestic green industries.
The notable climate initiatives outlined in the 2023 budget are the following:
- Clean technology investment tax credit (30-per-cent refundable tax credit).
- Clean electricity investment tax credit (15-per-cent refundable tax credit).
- Clean manufacturing investment tax credit (30-per-cent refundable tax credit).
- Clean hydrogen investment tax credit (40-per-cent refundable tax credit).
- Net-zero transmission project support.
- Canada Infrastructure Bank ($20-billion support for clean electricity investments).
- Recapitalization of the Smart Renewables and Electrification Pathways program.
- Canada Growth Fund.
What these measures boil down to is that, when it comes to environmental advancements, Canada is finally taking its innovation and productivity gap versus the United States seriously. So, for investors, now may present a good time to seek out cleantech north of the border.
With private- and public-sector players beginning to grasp that the clean energy theme represents a secular, long-term trend rather than merely a fad, capitalizing sooner rather than later is crucial.
There are several routes investors can choose to add exposure to this budding area:
- Investing in companies mining or processing “green commodities” (such as copper, nickel, lithium, cobalt, aluminum, silver, natural gas and uranium).
- Investing in firms that manufacture components used in renewable energy or sustainable technology.
- Investing in renewable energy providers.
While not an exhaustive list by any means, here are some key companies in this space that have caught our attention:
- Boralex Inc.
- Brookfield Renewable Partners
- Capital Power Corp.
- Innergex Renewable Energy
- Northland Power Inc.
- TransAlta Renewables Inc.
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- Ballard Power Systems Inc.
- WSP Global Inc.
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- Cameco Corp.
- Fortis Inc.
- Hydro One Ltd.
- Canadian Solar Inc.
David Rosenberg is founder of Rosenberg Research, and author of the daily economic report, Breakfast with Dave. Julia Wendling is an economist at the firm.