Taiwan energy stocks recommendation: Seize the opportunity in renewable energy transition

Taiwan is currently in a critical period of energy transition. With the government’s promotion of the “2025 Non-Nuclear Homeland” goal, green energy has become the market focus. Currently, renewable energy accounts for only 8% of Taiwan’s power system, a significant gap compared to international advanced levels. This also means that the related companies recommended in Taiwan’s energy stocks have enormous growth potential.

The Current Situation and Opportunities in Taiwan’s Renewable Energy Market

According to statistics from the Ministry of Economic Affairs’ Bureau of Energy, in 2022, Taiwan’s total power generation was 288.2 billion kWh, with coal and natural gas accounting for 80.88%, and renewable energy contributing only 8.27%. Nuclear power accounted for 8.24%, oil 1.54%, and pumped storage hydro 1.06%.

The power gap after the decommissioning of nuclear power plants must be filled by other energy sources. According to government plans, the renewable energy share target for 2025 is 15.1%, which means that the installed capacity of renewable energy will need to at least double in the next 2 to 3 years. The government has explicitly set targets of 20 GW for solar power and 5.6 GW for offshore wind power, with geothermal and small hydropower as auxiliary energy sources.

Another driving force comes from energy security considerations. Taiwan imports 97.3% of its energy consumption, with only 2.7% produced domestically. As international tensions escalate and energy prices fluctuate more intensely, developing domestic renewable energy has become an inevitable choice.

Global Policy Boosts Supporting Taiwan’s Energy Stock Recommendations

Favorable international policies also bring opportunities for Taiwanese related companies. The U.S. government passed the “Inflation Reduction Act” in August 2022, which will invest $369 billion to support the energy transition. The act is expected to increase U.S. solar installation capacity by 69% over the next 10 years, directly benefiting Taiwanese solar manufacturers.

Additionally, the proportion of renewable energy in global power generation has approached 30%. Comparing countries: the UK at 43%, Germany at 44%, Australia at 31%, Japan at 22%, and Taiwan at 8%, there is indeed significant room for improvement.

Core Targets for Taiwan Energy Stock Recommendations

Delta Electronics (2308): Dual Engines of Energy Storage and Automotive Electronics

Delta Electronics’ advantage in renewable energy lies in energy storage systems. Solar and wind power outputs are highly variable, requiring energy storage systems to stabilize power supply, which is Delta’s core competitive edge.

In the automotive electronics sector, Delta has obtained certifications from 75% of the top 20 global automakers. As electric vehicle penetration increases, related revenue is expected to grow substantially.

In June 2023, revenue reached NT$34.825 billion, an 8% year-over-year growth, setting a new high for the same period. Over the past three years, revenue has shown accelerated growth: NT$38.443 billion in 2022 (up 22.17%), NT$31.467 billion in 2021 (up 11.35%), and NT$28.261 billion in 2020 (up 5.40%).

SORW Energy (6806): Wind and Solar Integration Provider

SORW Energy focuses on solar, wind, and new energy investment development, providing EPC and operation & maintenance services for power plants. The company completed its IPO in November 2022, with annual revenue of NT$4.301 billion.

Performance has accelerated significantly in 2023. In April, revenue reached NT$774 million, mainly benefiting from revenue recognition from the second phase of Taipower’s offshore wind project. Revenue from this project will be recognized gradually over the next two years, with profit expected to further increase.

Huacheng (1519): Dual Beneficiary of Grid Transformation and Charging Stations

Huacheng is a long-term partner of Taipower, supplying transformers and other grid equipment. In September 2022, Taipower announced the “Strengthening Grid Resilience Construction Plan,” with a planned investment of NT$564.5 billion for large-scale grid upgrades, with Huacheng as a major beneficiary.

In the electric vehicle charging station market, Huacheng holds nearly 20% market share, leading the industry. As EV penetration continues to rise, demand for charging stations increases. In the first half of 2023, revenue was NT$4.643 billion, up 34.96% year-over-year; in June alone, NT$1.403 billion, up 50.15%; second quarter revenue NT$3.102 billion, up 51.72%, all setting new highs for the same period.

Demand for electrical equipment in the U.S. and Southeast Asian markets is also growing. As a Taiwanese heavy electrical equipment exporter, Huacheng’s export growth is promising. However, the stock price has already risen 242.56% since the beginning of the year, and a short-term correction may occur. Investors may wait for better entry points.

China Steel Microelectronics (5483): Direct Beneficiary of U.S. Policies

China Steel Microelectronics, a major Taiwanese solar manufacturer, will directly benefit from the U.S. “Inflation Reduction Act.” The act is expected to increase U.S. solar installation capacity by 69% over the next 10 years.

In 2022, rapid growth in solar deployment led China Steel Microelectronics’ solar business revenue to surpass NT$10 billion, reaching NT$10.25 billion, a 34.5% increase. However, in 2023, upstream silicon materials, wafers, and cell prices have fallen, putting pressure on revenue. Investors should closely monitor upstream raw material prices and consider entering when prices rebound.

Risks and Opportunities in Investing in Taiwan’s Energy Stocks

Investment Advantages:

• ESG Concept Favorable: Renewable energy aligns with sustainable development trends and may be included in ESG-themed funds
• Huge Growth Potential: As global demand for renewable energy increases, stocks have substantial return opportunities
• Strong Government Support: Tax incentives, subsidies, and policies provide industry backing
• Portfolio Diversification: Renewable energy has low correlation with other sectors, reducing overall risk

Investment Risks:

• Stock Price Volatility: Highly affected by policy changes and energy price fluctuations
• Performance Instability: Many renewable energy companies are in expansion phases, with volatile dividends
• Stock Selection Difficulty: Intense competition requires careful identification of potential companies
• Lack of Hedging Mechanisms: Derivative tools are scarce, making risk hedging strategies challenging

Investment Recommendations for Taiwan Energy Stocks

The Taiwan renewable energy sector is in a rapid growth phase, but individual stock selection requires caution. Investors are advised to:

1. Prepare for the Long Term: Renewable energy is a century-long plan; adopt a long-term investment mindset rather than short-term speculation
2. Manage Risks: Emerging green energy companies often have volatile performance; manage positions carefully and pace buying
3. Monitor Dynamically: Keep close watch on policy developments, upstream raw material prices, and monthly revenue indicators
4. Diversify Portfolio: Invest across different sub-sectors (energy storage, wind, solar, EV ecosystem) to reduce risk

The window of opportunity for Taiwan energy stocks is opening. By seizing policy benefits and industry growth phases, these stocks will become an important part of future investment portfolios.