The global economy is racing to reduce its carbon emissions to stave off the worst potential impacts of climate change. It will require a multipronged approach of investing in all types of lower-carbon energy sources.
Companies need to invest trillions of dollars in lower-carbon energy sources. That could power growth for the next few decades, with many companies potentially winning big as the global economy decarbonizes. Two lesser-known names with bright futures amid the energy transition are Atlantica Sustainable Infrastructure (AY) and EnLink Midstream (ENLC -0.28%).
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Investing in a more sustainable future
Atlantica Sustainable Infrastructure focuses on owning and operating infrastructure for a more sustainable future. Its portfolio includes clean energy power generation (wind, solar, geothermal, and natural gas), electricity transmission lines, and water desalinization plants. Overall, 70% of its portfolio are renewable energy assets vital for a lower-carbon future.
The company sees several catalysts driving growth in the coming years, including:
- Organic: Contract escalators, operational improvements, expanding existing assets, and repowering wind farms provide embedded growth opportunities.
- Development: The company can build new infrastructure developed in-house and with its partners.
- Third-party acquisitions: Atlantica can make small proprietary acquisitions from its partners or bid on competitive opportunities.
Atlantica is targeting to invest about $300 million per year on growth-related opportunities, which should drive 5% to 8% annual growth in its cash available for distribution per share through 2025. It has invested an average of $296 million annually over the last three years, including $480 million last year. Recent deals have included investing $198 million for a 49% stake in a U.S. wind farm portfolio and $170 million to purchase the third largest geothermal plant in the U.S. It has already committed to investing more than $110 million in 2022, including a couple of solar energy development projects.
These investments should enable Atlantica to continue growing its 5.1%-yielding dividend. That steadily rising income stream could help the company generate attractive total returns for investors in the coming years.
Cleaning up the country's carbon emissions
EnLink Midstream currently focuses on operating infrastructure to support the oil and gas market, including pipelines and processing plants. These assets supply the company with stable cash flow to support its dividend -- which yields 5% -- and grow its business.
The company's current growth focus is on expanding its fossil fuel infrastructure. It's adding capacity at existing facilities to support higher volumes as producers drill more wells due to higher oil and gas prices.
However, EnLink's vision is to leverage its existing assets to reduce carbon emissions by building a carbon capture and storage system. It recently partnered with Talos Energy (TALO 0.65%) to develop a complete carbon capture, transportation, and storage (CCS) solution for industrial-scale emitters in Louisiana. This system would utilize portions of EnLink's existing 4,000-mile pipeline infrastructure in the region to transport captured carbon dioxide to Talos' recently acquired Red Bend CCS site in Louisiana. The site has 26,000 acres of pore space that could sequester 500 million metric tonnes of carbon dioxide. That region has some of the highest emissions in the country -- 80 million metric tonnes per year -- making it an ideal place to target a CCS solution.
This project represents a potential win-win solution for EnLink and its customers. It can repurpose redundant pipelines to transport carbon dioxide, providing it with a possible high-return growth opportunity. Meanwhile, by reducing the area's emissions, its customers can continue to utilize fossil fuels without doing as much damage to the environment. That should enable the company to continue growing its cash flow in the coming years as it could be the first of many CCS-related investments.
Working toward a brighter future
Atlantica Sustainable Infrastructure and EnLink Midstream are far from household names. However, they have a bright future, given their focus on reducing carbon emissions. Those investments will make the world more sustainable while powering growth for investors in the coming years.
