The international campaign to decrease carbon emissions is powerful, and it’s difficult not to be moved by news about global warming. However, transitioning from carbon – based fuels to cleaner solutions would take decades.
That’s why Enbridge is launching its renewable energy initiative now, while it still has a sizable cash flow from its enormous carbon-based asset portfolio. But don’t allow the company’s carbon exposure prevent you from making investment in this high-yield Dividend Aristocrat; renewable energy growth will continue to be significant. Here’s what you need to know as an investor.
For the time being, oil reigns supreme.
Despite the fact that its percentage of overall energy demand will drop, oil will continue to be one of the most important sources to worldwide energy for a long period of time, with demand predicted to grow through 2040. With oil pipelines accounting for around 58 percent of Enbridge’s earnings before EBITDA (interest, taxes, depreciation, and amortization), these fee-based assets could generate consistent cash flows for years to come.
Enbridge’s natural gas pipelines contribute 26% of EBITDA, which complements this business. Because it burns cleaner than coal and oil, this fuel is considered as a gateway to a low-carbon future. Enbridge owns a natural gas utility, which accounts for 12% of EBITDA, in addition to all these natural gas midstream assets. Natural gas is predicted to enjoy rising demand and a larger part of the energy industry through 2040. The corporation anticipates these two natural gas companies to grow in importance in the long run, while its oil activities will diminish.
So, while it’s still in the carbon area, it’s adapting to the greening world on the outskirts. Enbridge’s renewable energy division, which amounted for 3 percent of EBITDA in 2020, offers hope to investors.
Rapid expansion
By the end of 2022, that 3% is expected to have risen to 4%. In absolute terms, that’s only a smidgeon of a percentage point rise. However, from such a low basis, renewable energy’s relevance to Enbridge’s business is growing at a rate of 33%. While that rate of expansion may not be viable, material expansion in the clean energy sector is virtually guaranteed.
With a market capitalization of $84 billion, the North American energy behemoth plans to invest approximately $1.2 billion (1.5 billion Canadian dollars) internally in projects like utilizing solar power on its pipelines, investment in clean natural gas, and looking into incorporating hydrogen into its operations, among other things. But it is Europe, not Enbridge’s North American footprint, that offers the most interesting possibility.
Between 2022 and 2024, the company plans to bring 3 large offshore wind-power ventures online, one each year. The firm’s offshore wind portfolio is going to doubled in size once the project is completed. Because Enbridge prefers to concentrate on assets supported by long-term contracts, this should have a substantial effect on the EBITDA failure of the company’s businesses. As a result, these clean energy investments will be comparable to the fee-based oil as well as natural gas pipelines.
Enbridge’s investment plans demonstrate its commitment to clean energy. Despite the fact that these assets are expected to account for only 4% of EBITDA, renewable energy is expected to account for around 30% of the firm’s capital investment over the next several years. The European wind investments account for the majority of this, accounting for about 28% of the entire capital budget (the remaining 2 percent will go to the internal ventures mentioned above). Overall, renewable energy, like the rising number of socially conscious ESG investors, is a key emphasis for Enbridge in the future.ornet
