Bitcoin (BTC -4.50%) is a big energy consumer, using an estimated 0.55% of all electricity generated in the world today, according to the Cambridge Center for Alternative Finance. And most mining is taking place in China, where coal is still the primary fuel source.
If Bitcoin is ever going to clean up its environmental impact, it'll need a lot of renewable energy to make it happen. That's why we think renewable energy stocks Atlantica Sustainable Infrastructure (AY -4.50%), Brookfield Renewable Corporation (BEPC -1.57%), and First Solar (FSLR -3.57%) could all be contributors to Bitcoin being cleaner and make a nice profit along the way.
Image source: Getty Images.
Sustainability is its name
Howard Smith (Atlantica Sustainable Infrastructure): Anyone who mines Bitcoin, or knows someone who does, has an idea of how much of a power sink those servers are. While Elon Musk recently raised concerns about the sustainability of the process to the forefront, it is just a piece of the green energy discussion that has been ongoing for some time. Whether it's mining Bitcoin or even making steel, companies are moving to establish power agreements to increase the utilization of renewable energy. This movement plays directly into the business model of Atlantica Sustainable Infrastructure.
Image source: Getty Images.
Crypto mining is global, and Atlantica's business is spread among North America, South America, and the Europe, Middle East, and Africa (EMEA) region. The company owns renewable energy installed generation capacity, efficient natural-gas-fired generation capacity, electric transmission lines, and water desalination plants. Any support for clean energy infrastructure, public or private, will be a potential growth opportunity for Atlantica.
Almost 75% of Atlantica's revenue came from its renewables sector in 2020. And 2021 is starting out strong. The company made just over $300 million in equity investments in 2020, but in the first quarter of 2021, it already had agreed to $280 million in new investments, including the third-largest geothermal plant in the U.S. Subsequent to the end of Q1, it also announced an approximately $200 million investment for a 49% stake in a 600-megawatt wind portfolio in the U.S.
Investors, of course, are looking for green in more than just the energy companies use. In 2020, Atlantica grew its cash available for distribution by 5.5%, which accelerated to 7.6% year over year in 2021's first quarter. Looking out to the medium term, management thinks it will grow distributable cash by 5% to 8%, giving investors good reason to expect past dividend growth to continue. The company's dividend has increased about 50% in the last five years. Computing power takes energy. Regardless of the reasons, a push for sustainable energy generation plays right into the business of Atlantica Sustainable.
Investing in a sectorwide growth story
Daniel Foelber (Brookfield Renewable Corporation): High electricity consumption is par for the course when it comes to Bitcoin mining. This is because one of Bitcoin's greatest strengths, the management of its supply, is also the biggest reason why it is becoming a strain on the environment.
A finite supply of 21 million tokens paired with a 10-minute average mine time per Bitcoin block ensures that a surge or decrease in computing power doesn't affect supply. This consistency is largely thanks to biweekly difficulty adjustments -- part of the Bitcoin protocol -- that make it easier or harder to mine Bitcoin. Put another way, the same number of Bitcoin blocks will be mined each day no matter if 10 GPUs are at work or 10 billion.
The reality is that Bitcoin's electricity consumption could continue to rise as long as there's profit to be made from mining more tokens. However, there's reason to believe that crypto mining could actually contribute to the transition from fossil fuels to renewable energy. This is because Bitcoin mining offers a solution to the battery storage problem. On particularly sunny or windy days, solar and wind farms can put that excess energy to use by powering Bitcoin mining rigs. It sounds crazy, but if it means making a profit from an otherwise wasted energy source, then companies are likely to do it.
Brookfield Renewable Corporation would be one of the safest ways to benefit from the increased use of renewable energy. The company owns and operates renewable assets and power-generating facilities, finishing 2020 with a renewable capacity of around 18.8 gigawatts.
Its unlikely Brookfield Renewable will be able to increase its top line as fast as higher-growth names. But what it lacks in growth it makes up for via its track record of delivering market-beating returns and boosting its dividend. Shares of Brookfield Renewable yield 2.9% at the time of this writing.
The solar leader
Travis Hoium (First Solar): As Howard and Daniel have pointed out, Bitcoin requires a lot of energy, and simply putting more renewable energy onto the grid will help clean up this cryptocurrency's impact. One of the biggest and most profitable companies deploying new renewable energy assets is First Solar, the manufacturer of thin-film solar panels.
Unlike most solar companies, First Solar has been profitable for most of the past decade (minus about a two-year period when it was upgrading factories) and has arguably the best balance sheet in the industry. At the end of 2021, management expects to have a net cash balance of $1.8 billion to $1.9 billion, which is incredible for a company with a market cap of $8.5 billion.
FSLR Revenue (TTM) data by YCharts
Management also just announced a $680 million investment in Ohio, which will increase solar panel production capacity by 3.3 gigawatts (GW) annually. This will increase U.S. capacity to over 6 GW and global capacity to over 11 GW.
As the critical component to solar farms, solar panels will continue to be in high demand as renewable energy demand increases and Bitcoin plays a role in that. And if you're going to invest in a solar manufacturer you might as well bet on one of the few companies that have proven the ability to make money long term.
More cheap renewable energy
The theme here is that all of these companies are expanding the supply of renewable energy in the market. And that's what Bitcoin needs if it's going to clean up its operations. Bitcoin is one reason these stocks could have a long growth runway ahead.
