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The Sustainability Portfolio: Set it and Forget it? (ECOX, NEE, STEM, QS, FAN, TAN, FSLR)

Certain facts should be observed.

First, the renewable energy movement is now an established facet of the developed world, with expectations boosted by the transition in Washington DC to the Biden administration, which has already pledged its commitment to the cause at roughly twice the real-dollar investment that went into the space program in the 1960’s.

Furthermore, the Environment, Social, and Governance (“ESG”) investment theme is thought to drive as much as $67 trillion in investment flows over the next decade, according to research from Morgan Stanley. This estimate is driven by what may be the most powerful long-term force driving finance over the next ten years: inheritance. Capital is to be passed from baby boomers to millennials, with an associated shift in sensibilities and thematic focus.

This is a factor set to drive markets over both the near-term and long-term horizons and to do so through both the supply of capital and the demand for new solutions to old problems.

As central banks and governments begin to prepare for a gradual removal of emergency stimulus support, the upward pressure on interest rates is likely to set to recede, fostering a re-rotation back into long-term growth plays, which may once again favor stocks in this sustainability theme, including opportunities such as NextEra Energy Inc (NYSE: NEE), QuantumScape Corporation (NYSE: QS), Eco Innovation Group (OTC US: ECOX), Stem Inc (NYSE: STEM), Invesco Solar ETF (NYSEARCA: TAN), First Trust Global Wind Energy ETF (NYSEARCA: FAN), and First Solar, Inc. (NASDAQ: FSLR).

We take a closer look at several of the more interesting opportunities in this space below.

NextEra Energy Inc (NYSE: NEE) generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America.

The company generates electricity through wind, solar, nuclear, and fossil fuel, such as coal and natural gas facilities. It also develops, constructs, and operates long-term contracted assets with a focus on renewable generation facilities, natural gas pipelines, and battery storage projects; and owns, develops, constructs, manages, and operates electric generation facilities in wholesale energy markets.

NextEra Energy Inc (NYSE: NEE) recently announced that it has entered into an amended agreement to upsize by $150 million its existing convertible equity portfolio financing with KKR (the Investor), through its core infrastructure strategy. NextEra Energy Partners originally entered into the 10-year convertible equity portfolio financing in November 2020.

“The agreement announced today demonstrates the continued robust private infrastructure demand for the high-quality assets in NextEra Energy Partners’ portfolio and our strong continued relationship with KKR, which is providing us with an attractive low-cost source of capital,” said Jim Robo, chairman, and chief executive officer. “This is a terrific source of capital for NextEra Energy Partners and supports funding for the acquisition of the previously announced 400-megawatt portfolio of wind projects. In addition, the upsizing of what is the lowest-cost and longest-dated convertible equity portfolio financing in the partnership’s history is expected to provide significant benefits for unitholders. We continue to believe that NextEra Energy Partners is uniquely positioned to take advantage of the disruptive factors reshaping the energy industry, meet its long-term growth objectives and deliver unitholder value going forward.”

It will be interesting to see if the stock can break out of its recent sideways action. Over the past week, the stock is net flat, and looking for something new to spark things. NEE shares have been relatively flat over the past month of action, with very little net movement during that period.

NextEra Energy Inc (NYSE: NEE) generated sales of $4.3B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 7.7% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($1.5B against $15.8B, respectively).

QuantumScape Corporation (NYSE: QS) bills itself as a leader in developing next-generation solid-state lithium-metal batteries for use in electric vehicles.

The company’s mission is to revolutionize energy storage to enable a sustainable future.

QS recently announced that it has entered into an agreement with Volkswagen Group of America, Inc. to select the location of their joint-venture solid-state battery pilot-line facility by the end of 2021. The companies currently contemplate Salzgitter, Germany for the location. The pilot-line facility, QS-1, will initially be a 1-gigawatt hour (GWh) battery cell commercial production plant for electric vehicle batteries. QuantumScape and Volkswagen intend to expand production capacity by a further 20 GWh at the same location.

“Our goal has been to bring our solid-state lithium-metal batteries to market as soon as possible,” said Jagdeep Singh, CEO, and co-founder of QuantumScape. “This joint venture brings together QuantumScape’s core battery technology with Volkswagen’s deep understanding of high-volume, high-quality production, and maximizes our ability to bring this technology into industrial production.”

The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 17% in that timeframe.

QuantumScape Corporation (NYSE: QS) had no reported sales in its last quarterly financial data. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($1.5B against $21.4M).

Eco Innovation Group (OTCMKTS: ECOX) is an interesting newcomer in the space that seems to be gaining rapid traction toward a series of meaningful commercial launches involving innovative green tech solutions. The company’s model is driven by nurturing the work of top inventors in the US and Canada, helping to bring their best green-tech ideas to life and then signing exclusive licensing deals to commercialize the results.

The company was founded, according to its materials, “by Inventors and Business Professionals to help nurture and catalyze the most innovative and impactful products and services, and to deliver those innovations to the world, improving the quality of life in our communities and the world around us, while delivering value to our shareholders. At ECOX, we are dedicated to developing and commercializing successful products. But we will never lose sight of the fact that we exist, first and foremost, to help people and improve life on the planet we all share. We take our Social Responsibility Contract seriously in all our endeavors. It is not only what we do. It is who we are.”

Eco Innovation Group (OTCMKTS: ECOX), as a case in point, announced the signing of an exclusive License Agreement this morning with Lance Nist, inventor of PoolCooled, which is described as a revolutionary climate control solution that leverages proprietary technology to cool a home or building by taking cool water from an existing swimming pool and looping it through the existing air conditioning system to boost efficiency on a per-unit power consumption basis. The Agreement grants the Company exclusive rights to commercialize PoolCooled.

“ECOX has reached a series of milestones throughout 2020 and 2021, and this exclusive license to bring PoolCooled to market is another significant step forward,” stated Julia Otey-Raudes, CEO of ECOX. “The license allows us to kickstart the next phase as we push toward the anticipated launch of this cost-saving renewable energy technology solution available for installation and use any time, in any weather, in any part of the country.”

As previously reported by the Company, an initial efficiency test was performed under controlled conditions by Mr. Nist. The test compared the power usage involved in cleaning a swimming pool and cooling a home equipped with a three-ton central AC system, where the pool was immediately adjacent to the home. The test showed that, over a specified period, the separate tasks of operating the pool filtration system and the home AC system, independently and with traditional systems in place, required 4,300 watts of power. By comparison, both tasks were accomplished equally well by the PoolCooled™ system, which consumed only 1,100 watts of power over the same time period. This represents an approximate savings of 65-75% in total energy usage and costs.

Eco Innovation Group (OTCMKTS: ECOX) shares have been consolidating over the past year as the stock builds up liquidity in anticipation of its transition toward full commercial-stage operations. It currently trades at much cheaper levels than most of the stocks in this space, which may represent an opportunity as the stock gains traction and becomes more widely visible.

Stem Inc (NYSE: STEM) bills itself as a global leader in artificial intelligence (AI)-driven clean energy storage services. The company provides solutions that address the challenges of today’s dynamic energy market. By combining advanced energy storage solutions with Athena, a world-class AI-powered analytics platform, Stem enables customers and partners to optimize energy use by automatically switching between battery power, onsite generation, and grid power.

Stem’s solutions help enterprise customers benefit from a clean, adaptive energy infrastructure and achieve a wide variety of goals, including expense reduction, resilience, sustainability, environmental and corporate responsibility, and innovation. Stem also offers full support for solar partners interested in adding storage to standalone, community or commercial solar projects – both behind and in front of the meter.

STEM recently announced its financial results for the first quarter ended March 31, 2021, including revenues of $15.4 million vs. $4.1 million in the same quarter last year, Gross Margin (GAAP) of (1)% vs. (34)% in the same quarter last year, and Non-GAAP Gross Margin of 19% vs. 1% in the same quarter last year.

John Carrington, Chief Executive Officer of Stem, commented, “We are excited to announce strong first-quarter results following the recent completion of our business combination with Star Peak. Revenue exceeded the high end of our guidance range, coupled with strong gross margin and Adjusted EBITDA performance. Our contracted backlog grew more than 20% sequentially, reflecting strong commercial momentum particularly in the Front of the Meter (“FTM”) segment and a quickly growing end market. Looking forward, our sales, product development, and operations teams continue to drive toward achieving our 2021 guidance and building momentum into 2022 and beyond. As the first publicly traded pure-play smart storage company, our experience, industry-leading software, robust service offerings, and strong balance sheet will continue to differentiate Stem in this rapidly expanding market.”

Stem Inc (NYSE: STEM) has been acting well over recent days, up to something like 35% in that time. Shares of the stock have powered higher over the past month, rallying roughly 70% in that time on strong overall action.

 

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