The negative effects of fossil fuels on the environment have been a growing concern in the last few years. Consequently, fossil fuels are gradually phasing out and renewable energy sources are taking the lead. The Canadian Renewable Energy Association (CanREA) recorded 13.6% (288 MW) growth in Canada’s solar energy sector between 2020 and 2021. This means that Canada evolved from a solar power of 2,111 MW to 2,399 MW in just one year. For this reason, it’s a great time to invest in the Canadian solar energy stock market!

As you can imagine, many investors already have an eye on Canadian solar energy stocks. Here, we’ll reveal which Canadian solar energy stocks are more likely to perform well to allow you to maximize your returns and build up your portfolio.

Renewable Energy vs. Fossil Fuel: Which one should you invest in?

If we were to compare renewable energy to fossil fuels 5 years ago, we might have had a relatively fair score of 1:1. However, the scale is now in favor of renewable energy. This is due to the global need for cleaner and greener energy sources and infrastructure. For every dollar you invest in fossil fuels, over $1.70 dollars go into the clean energy sector. Hence, investors are shifting their funds to the renewable energy sector. Although, renewable energy sources have disadvantages too. But investing in fossil fuels may be a risky bet in the long run. The seeming rise in the need for oil and gas is short-lived. While the need for fossil fuels is expected to see a fall years later, in response to global warming and climate change.

What are fossil fuels?

On the other hand, fossil fuels are fuels found in the earth’s crust as a result of decomposing plants and animals. The major components of fossil fuels are carbon and hydrogen. Popular examples are crude oil, natural gas, and coal.

What is renewable energy?

Clean energy (also called renewable energy) is the energy generated from natural resources. They can be naturally renewed at a faster or equal rate than their used-up rate. These natural energy sources include:

• Wind
• Solar
• Hydropower
• Geothermal
• Solid biomass
• Biogas, and
• Liquid biofuels

Related Reading: Best Renewable Energy Stocks: Top 5 for 2023

Investing in either renewable energy or fossil fuels depends on your preferences and your investment plans and goals. But you can take advantage of both, as it’s an opportunity to diversify your investment portfolio. You can also leverage several mutual funds and exchange-traded funds if you’re uncertain with stocks.

Pros and Cons of Investing in Solar Energy

Despite solar energy stocks seeming like a gold mine for investors, they also have some drawbacks. The pros and cons of investing in solar energy are similar to the pros and cons of solar energy as a whole. Let’s take a closer look below.

The pros include:

• High sustainability. Unlike fossil fuels that have expiration dates, you cannot fully exhaust solar energy. The sun’s energy is a constant factor that will last for billions of years.
• Low environmental impact. Solar energy has no environmental hazards, unlike the ones associated with fossil fuels. Similarly, there are no carbon or greenhouse gasses in its operations.
• Reduce your home’s electricity bill. Solar energy usage reduces your electricity bills. Interestingly, you might have enough to sell to the utility.
• Improves home values. As a property owner, installing solar panels increases your property value. As a result, you’ll earn high returns.
• Can produce electricity in any climate. Climate changes do not affect the solar energy industry, as solar is productive in all climate conditions.
• Low maintenance costs. Due to its low maintenance cost and an average life of 25 years, solar companies earn high revenue.

The cons of investing in solar energy are as follows:

• Utmost dependency on sunlight. Solar energy generation is only limited to daytime. Nighttime and significant cloud cover can tamper with its operations.
• The large solar panel requires enormous space. To minimize space consumption, solar panels are to be mounted on the roofs of large buildings and warehouses.
• Inability to function well on all roof types. For optimal performance, the roof supporting the solar panel must face the sun. Specifically, roofs that are at an angle facing the sun tend to fit better than flat roofs.
• High installation costs. Buying and installing solar power is expensive, but it pays after several years. As a result, it’s a perfect fit for property owners, not renters. However, it can still be expensive on top of the cost of a home in Canada.

Related Reading: 5 Best Green Energy Stocks in Canada

What are the best Canadian energy stocks to buy now?

There are several Canadian energy stocks that you can invest in and expect a good yield. These industries don’t just generate energy through solar, but from other sources too. They include:

Ticker	Dividend Yield	PE Ratio	Market Cap
BEP-UN.TO	5.16%	N/A	$23.28 Billion
INE.TO	5.79%	N/A	$2.49 Billion
AQN.TO	6.06%	N/A	$6.45 Billion
NPI.TO	5.14%	13.70	$6.00 Billion
BLDP.TO	N/A	N/A	$1.59 Billion
SPG.TO	N/A	N/A	$37.39 Million
RNW.TO	7.27%	43.27	$3.45 Billion

Related Reading: What’s a Good P/E Ratio?

1. Brookfield Renewable Partners (BEP-UN.TO)

Brookfield Renewable Partners is the largest renewable stock with the highest market capitalization. It has 6,000 generating facilities in South America, North America, Europe, and Asia. It has a total capacity of 21,000 megawatts (MW).

Aside from being a Canadian solar energy stock, the company has other facilities. For example, the wind, hydroelectric, and storage facilities. It has consistent cash flows, resulting in high dividend payouts to shareholders. In the long term, Brookfield Renewables has a promising future of 12% to 15% return per year, which is more appealing.

2. Innergex Renewable Energy (INE.TO)

Innergex Renewable Energy had its roots in hydroelectric energy before it widened its portfolio. However, it has now expanded to include solar energy and wind energy.

The company has generating facilities in France, Chile, and North America with a gross capacity of 24.6 MW. A vast majority of its assets are in the U.S. and Canada, but Chile and France hold 26% of its net capacity. It has maintained a consistent dividend payout amidst financial challenges. This is a clear identification of a good investment option.

3. Algonquin Power & Utilities (AQN.TO)

Algonquin Power and Utilities is one of the leading renewable energy companies in Canada. Aside from being a renewable power generating company, it is also a utility company. It provides natural gas, electric power, and water utility services. The company has about 1.4 GW of generated capacity and 2.5 GW of installed capacity. Thus, it can accommodate thousands of consumers without the need to expand.

However, Algonquin Power and Utilities suffered mismanaged debt. As a result, the management downsized dividend yields and gave up some assets. This is a clear sign of a committed management team that can make tough decisions.

Related Reading: Best Monthly Dividend Stocks in Canada for 2023

4. Northland Power (NPI.TO)

This Canadian solar energy stock is among the first independent power generators in Canada. Northland has assets in Europe, Canada, Asia, and Latin America. They include solar energy, wind, efficient natural gas, and clean natural gas. Northland has 13 Canadian solar energy sites situated across Ontario. These sites are generating about 200 gigawatts per hour (GWh) from 600,000 solar panels each year.

Between 2017 and 2022, the company expanded to 100% operating income and 115% operating capacity. This resulted in a 60% increase in capital and, thus, a significant increase in dividends over that period.

5. Ballard Power Systems (BLDP.TO)

Ballard Power Systems is a global leader in producing electrical energy through hydrogen fuel. In March 2023, a carbon reduction company, First Mode, placed a purchase order for the supply of 30 hydrogen fuel cell modules. In place of clean or greener power, Ballard fuel cells can power industrial installations. This has led to its massive potential growth in the power-producing market.

Although Ballard’s annual net income is minimal, it carries a small amount of debt and has an outstanding cash position. Also know this, if hydrogen fuel becomes readily available as an energy source, you may want to acquire its stock right away. 

6. Spark Power Group (SPG.TO)

Spark Power Group operations have three segments; renewables, technical services, and corporate. The renewables are the Northwind, One Wind, and Spark Power Solutions CGUs. Spark was an electricity provider until it expanded its services into renewables. Its services are spread across a large range of commercial and industrial customers.

If you’re considering investing in this stock, it’s important you know this. It has suffered an 80% drawdown in market value from September 2018 to August 2023. Although, Spark Power is a good stock to buy considering its undervaluation, geographical reach, and rise in its financials.

7. TransAlta Renewables (RNW.TO)

TransAlta Renewables is a subgroup of the massive TransAlta Corporation. It’s under the operational management of the TransAlta Corporation. The company aspires to grow its renewable energy stock. Specifically to sustain its cash flows and long-term operations. TransAlta offers investors in search of income a high dividend rate and payout ratio.

One thing that stands out about this company is the monthly dividend payments to its shareholders. This is a sought-after feature for investors who prefer steady yields.

Related Reading: Best Canadian Stocks: Top Picks for 2023

Should I Invest in Canadian Solar Energy Stocks?

Investing in Canadian solar energy stocks requires deep consideration of various factors. It’s an opportunity to build your net worth over time, but it’s risky like all other investments. However, you can avoid the risks by taking the right approach as an investor.

First, conduct thorough research on various Canadian solar energy stocks before investing. Know their financial health, revenue growth, the company’s recent news, and their track record. Secondly, know your risk tolerance, because stocks are highly volatile in the renewable energy sector. Also, don’t invest all your eggs in one basket; diversify your investment portfolio to minimize your risk exposure. In addition, seek investment advice from an experienced financial advisor. They provide customized help that fits your investment goals. All in all, it helps you make informed decisions. Finally, don’t forget to always stay updated with global trends, government policies, and sudden changes. This helps you know when the tides are changing in the energy stock market. Good luck on your investing journey!

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