Canadian renewable utility stocks have soared this year as investors bet on a global expansion of cleaner power, abandoning oil and gas stocks that have plummeted due to pandemic travel restrictions.
The election of Democrat Joe Biden as U.S. president this month has raised potential for a robust U.S. renewables plan to fight climate change. If Congress remains divided after runoff elections in Georgia in January, however, Biden may face greater obstacles.
Canadian renewables have become a landing spot for investors looking for wind, solar and hydro plays.
"They recognize oil and gas is a sunset sector. It's not going away anytime soon, but they don't expect any growth long-term," said Tim Nash, a Toronto financial planner focusing on sustainable investments.
Innergex Renewable Energy Inc, Northland Power Inc and Boralex Inc are among the stocks to notch record highs this year.
Such moves have rewarded investors in an otherwise volatile year, but Brookfield Renewable Partners LP and Algonquin Power & Utilities Corp have surpassed analysts' average price target, suggesting they do not expect further near-term gains.
Others, like Innergex and Boralex, have gained more than 30% and 50% respectively even though they lost money last year.
Oil stocks, by contrast, plummeted this year before recent vaccine breakthroughs, with the S&P/TSX energy index down more than 40%.
"(Oil's) headwinds are largely tailwinds for the renewables space," said TD Securities analyst Menno Hulshof.
Many renewables have the bulk of their electricity-producing operations outside Canada. They are likely to grow at similar or higher rates than global peers, CIBC analysts said on Oct. 13.
Some are making deals with the oil companies investors are shunning.
In July, U.S. oil major Chevron Corp and Ontario-based Algonquin struck a four-year deal to develop renewable power for Chevron operations in the U.S. Permian Basin.
Algonquin, which is both a conventional utility and green energy producer, hopes to strike similar deals with other oil producers who are attracted to renewable power's falling costs, said Chief Executive Arun Banskota.
"The most important of all the drivers (behind renewables) are the economics," Banskota said in an interview.
Such partnerships interest Canadian Natural Resources Ltd , said Tim McKay, president of Canada's biggest crude producer.
"We look at all sorts of opportunities and those would be some of them," McKay said, declining to comment on whether he is holding any specific talks. "If you could have renewable power and reduce your environmental footprint, that would be very complementary to our business."
Northland Power is looking to expand in offshore wind, possibly through joint ventures with oil companies, said CEO Mike Crawley.
"We're trying to turn that wave of capital, including from oil and gas majors, that's coming into renewables and particularly offshore wind to our advantage," Crawley said.
Rising interest among oil majors and conventional utilities crowd may mean increased competition.
The scale of opportunity is great enough, however, to absorb new competitors, said Wyatt Hartley, Brookfield's chief financial officer. He noted pledges this year by corporations such as e-commerce giant Amazon.com to become carbon-neutral.
Renewables could become takeover targets by oil majors looking to acquire a green portfolio, adding to their upside, said Robert McWhirter, president of Selective Asset Management, whose holdings include Boralex and Northland.
Many Canadian companies have established operations in growing markets like Europe, the United States and South America, said Innergex CEO Michel Letellier.
"We've been able to prove we can compete on an international basis," he said.