Investments in U.S. Clean Energy are at a Record Level. Here Are 5 Key Players.

A surge in clean-energy production is taking place across the United States. Manufacturing facilities suddenly produce everything from solar and wind equipment to batteries and low-carbon gasoline. Fueled by new tax benefits, corporate investment funds are converting the United States from an afterthought in alternative energy to a major player, boosting the fortunes of many corporations.

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According to Trade Algo, there have been 76 announcements of clean-energy projects since President Joe Biden designated $370 billion for clean energy in the Inflation Reduction Act in August. Of those, 40 mentioned financial amounts, totaling $77 billion.

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"We're really driving the energy shift at a crazy pace," says Eagle Global Advisors portfolio manager Michael Cerasoli.

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Despite the funds flowing in, investing economically in clean-energy startups remains tough. Certain items, such as solar panels and batteries, are traded as commodities, with no distinction between manufacturers. Others, like wind turbines, sell into highly regulated industries where returns are somewhat restricted.

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To identify companies that can advance despite those headwinds, it's important analyzing names that have identified real niches or have a head start in specialized sectors. Corning GLW -1.12% (ticker: GLW), solar equipment business Enphase Energy ENPH -2.81% (ENPH), biofuels producer Neste NESTE -0.62% (NTOIY), energy-efficiency company Schneider Electric (SBGSY), and battery maker Freyr Battery FREY -3.17% are among them (FREY).

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After the law's passage, the majority of new investment has gone towards battery facilities, largely to supply electric automobiles. Subsidies are available for those factories, and automakers require North American batteries to qualify for the greatest tax breaks. According to Bank of America, at least 17 new battery plants are planned, including ones for Panasonic in Kansas and Toyota in North Carolina. Nonetheless, the manufacturing growth endangers the industry's viability. Credit Suisse expects that as capacity ramps up, the U.S. market will be oversupplied by mid-decade, "putting pricing pressure on battery producers down the line."

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Freyr, situated in Norway, is one company that sells batteries. Freyr specializes in energy storage, which allows renewable energy providers like wind and solar farms to store electricity for when the wind isn't blowing, or the light isn't shining. Freyr said in November that it had purchased land in Georgia for a $1.7 billion facility, which would be partly aided by federal, state, and county subsidies. Energy storage is frequently "glossed over," even though it "stands today as the only bankable answer for coal retirements and increasing grid dependence on renewable" energy, according to Bank of America analyst Julien Dumoulin-Smith, who rates Freyr a Buy and believes shares can rise to $13 from their current $8. Freyr has contracts but no income, making the stock risky.

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Enphase, situated in California, has created a successful niche in manufacturing high-tech solar components known as inverters and selling batteries to residential solar clients. Enphase stands apart in a market with limited distinctiveness and poor margins due to its robust profitability and 40%-plus gross margins. A slowdown in the solar industry at the start of the year wiped out almost 25% of its shares, leaving the stock trading at a discount to its previous history. Enphase is establishing plants in the United States to manufacture inverters, banking on IRA tax credits, lower transportation costs, and consumer preference for domestic products this year. "Our installers have requested Made in America items," says CEO Badri Kothandaraman to Trade Algo. "They would want to market a Made in America product to the homeowners who don't want to buy anything made in China."

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Schneider Electric, based in France, is a one-stop shop for electrification; North America accounts for around one-third of its income. Schneider manufactures common electrical equipment, such as circuit breakers, and sophisticated software to manage electrical systems and microgrids, providing consumers and businesses greater control over their power. "We have transferred a lot of supply into the United States," says Schneider's government relations executive Jeannie Salo.

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Corning, located in upstate New York, manufactures glass for televisions and automobiles. Yet the corporation also has a developing solar sector, generating polysilicon at a Michigan facility where it retains a controlling share. Government officials have bemoaned the absence of domestic polysilicon manufacturing and included production subsidies in the IRA. Corning began polysilicon manufacturing at its Michigan plant last year and has already witnessed increased orders. Solar was a rare bright light in its recent quarter because its main business was suffering from "basically recession-level demand," says CEO Wendell Weeks. Even though total business sales declined by 7%, the solar division rose by 22%.

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Neste, a Finnish firm, produces renewable diesel from animal fats and vegetable oils for conventional diesel engines. Neste teamed with Marathon Petroleum MPC -0.48% (MPC) last year to convert a former California oil refinery into a renewable energy facility, and the company plans to generate 17 million barrels of renewable energy by the end of the year, which will be eligible for state and federal credits. Neste also leads in sustainable aviation fuel, which may be combined with jet fuel to reduce the carbon footprint of air travel. Although the market is limited, governments have set lofty targets, with Japan aiming to utilize it for 10% of its jet fuel by 2030. Airlines have agreed to invest in new fuel capacity.

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The United States was a wasteland for clean-energy manufacturing a year ago. The spending boom is altering that, and investors may join in.

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