Are Renewables the Future for the Utilities Sector?

Travis Miller: Renewable energy in the U.S. is no longer just a side job for utilities. In fact, over the next decade, we think it's going to be one of the biggest growth drivers in the sector. What we're looking at is almost 8% annual growth in renewable energy, bringing renewable energy to almost a quarter of all electricity generation and demands by 2030. Some of the big demand drivers in renewable energy are going to be New York, which is aiming for 70% renewable energy by 2030, and California, which is aiming for 60% renewable energy by 2030. Our forecast just includes those state policies in place, and there's a lot more upside if the economics continue to improve and other states enact policies that would support renewable energy.

There are several utilities that are typical renewable energy investors--NextEra Energy, Xcel Energy lead the pack--but we think there are several other utilities that can benefit, grow earnings, and grow the dividend based on their renewable energy investments. Some of those include CMS Energy in Michigan, Alliant Energy also in the Midwest, and Edison International in southern California, where infrastructure is going to be absolutely essential to reaching California's goals.

Utilities valuations are rich right now, but we still think there are many utilities that can benefit from the renewable energy investment growth that's coming over the next decade.