FTSE 100 shares in the energy sector have witnessed a huge surge in profits over 12 months. Like many investors, I am looking at shares in the industry that could supercharge my portfolio. While there are several good stocks on offer, I have identified two showing explosive growth potential over the next decade.
But first, why are renewable energy shares witnessing historic levels of interest right now? I think the COP 26 summit last year triggered the perfect storm for a transition to cleaner energy. While governments increased focus on green alternatives, crude oil prices rose after Russia’s invasion of Ukraine. This added fuel to the green energy lobby and countries are now scrambling to secure sustainable alternatives to meet the power demand.
With money pouring into Europe’s thriving energy sector, I think this is the perfect time to invest.
FTSE 100 shares I’d buy to capitalise
The first company on my list is SSE (LSE:SSE). The FTSE 100 giant has the largest renewable electricity portfolio in the UK and Ireland. It specialises in onshore and offshore wind as well as hydropower. The company sells and distributes its energy to UK’s power grid.
In the financial year (FY) 2021, SSE generated £6.83bn in revenue and a total income of £2.28bn. These figures jumped significantly in FY 2022 when the company generated a revenue of £8.61bn and recorded an income of £3bn. The 33% jump in income comes primarily from its renewables wing.
Thanks to this strong showing, the FTSE 100 share has gone up 15.4% in the last six months. And despite this jump, it is still trading at a price-to-earnings ratio of 7.7 times. SSE shares also come with a healthy 4.6% yield making it really cheap right now
The other company on my watchlist is Centrica (LSE:CNA), a power transmission and delivery company with 11.7 gigawatts (GW) of renewable power under management.
Centrica operates British Gas, which powers millions of homes in the country. Centrica has been adding services like installing EV chargers to help consumers hit net-zero emissions as well. The company also owns a 20% stake in UK’s nuclear energy bank which is considered one of the cleanest sources of energy today.
The FTSE 100 share saw its dividend reinstated last month after the company saw revenue jump a whopping 2,851.22% in 2021 to £1.21bn. Although this is in comparison to a terrible 2020, the bounce back is significant. The energy giant also presented a stronger balance sheet, repaying the £93m debt from 2021.
Concerns and verdict
While both companies look financially strong right now, it is worth noting that energy prices play a major role here. When energy prices stabilise, profits could trend back towards pre-pandemic levels. This will slow down the investor interest in these two FTSE 100 shares.
Right now, both companies have a strong cash flow. But as we move closer to UK’s net zero ambitions, R&D budgets and asset purchases will increase, which could affect future results.
However, given the size, reach, and finances of these two companies, I think they are the best FTSE 100 energy shares for my portfolio right now. Depending on share price performance, I may be tempted to make a £1,000 investment in both in the coming months.