The world is beginning to change and everything is leaning towards green and renewable energy. From home electronics, appliances, wears and gears to food storage, packaging aswell as preservation, much emphasis is now being placed on Mother Nature.
The prominence of the renewable energy sector is being geared by falling costs and increased demand for energy. The projection for the next 20 years also predicts that the renewable energy sector would continue to experience an exponential growth thanks to the falling cost of solar and wind power.
Electricity from offshore wind turbine is now relatively cheaper than nuclear energy for the first time in a long while. Improved infrastructure and higher voltage cables have also seen prices halved in the past 2 years.
Observers have identified bigger turbines, coupled with the challenges facing the coal, oil and gas sector aswell as a growing chain of supply as the key contributors to the prevalence of off-shore wind energy. These also unveils a new area for investors to explore.
Investment opportunities in renewable energy
The renewable energy industry has left the primitive stage and now, there are several opportunities for investors to consider.
Unlike like the early times where the opportunities in the renewable energy industry were limited to a selected few, today, companies and individuals can make direct investments in renewable energy projects, be it small amounts.
These are considered as low-risk investments as long as there is a contract in place to sell the power – wholesale projects or to net-meter the electricity – for behind-the-meter-projects which is highly popular today.
The risk for solar PV projects is particular low because once the facility is installed and set in motion, not much can go wrong.
Some low risk strategies to invest directly in renewable energy
Renewable Energy Bonds
Warren Buffet’s Mid-American Energy Company offered 1 billion dollars in bonds at an interest rate of 5.375%. The said amount is to finance about 6 of the total cost of its magnificent 550 megawatt Topaz Solar Farm – San Luis Obispo County, central California.
Green bonds have now amounted to over 9 billion dollars and there will be more of the same as more qualified investors are waking up.
This crowd sourcing start-up allows you to purchase a piece of real solar project that has been fully examined by the mosaic team.
The interest rate are not fixed as they vary from about 4.5% to about 6% over an obligation period of about 5 to 6 years.
Although the company isn’t accepting new investors at the moment, admission of new members is expected to commence soon.
The profit earned on this investments over time can be further reinvested.
Asides the low-risk investments in renewable energy, there are several other companies who offer smart investments although they are of higher risk. As a matter of fact, history has it that the renewable energy investment landscape is quite risky.
This is as a result of continuous development in technology and changing government policies.
Although the renewable market is risky, there are techniques to stepdown the risk and earn high income.
The development potential
According to the research conducted by McKinsey & Company, about 77% of new global electrical generation capacity will come from wind and solar from with the projection going as far as 2050.
Key talking points from their research reveals
- The overall energy usage will continue to grow across the globe
- There will be an increase from 18% – 25% of electricity generation due to the increase of electrically powered vehicles
- The installed capacity of wind and solar will grow 4-5x in pace when compared to other sources of energy for generating electricity.
- Asian countries, particularly China and India will account for over 70% of the new electrical generation capacity
- Fossil fuels wouldn’t fade just yet, they will remain for a while due to the large existing infrastructure but natural gas will slowly upturn the market from coal.
Other strategies to invest in renewable energy includes
Solar/Wind product manufacturers
One of the high-risk high-reward strategies to invest in renewable energy to go directly to the origin: the companies that are at the zenith of new solar and wind technologies.
These companies are growth driven, they do not pay dividends and they often have high valuations. They also may or may not be profitable as at the time of investment.
Their products need to be consistent in the market in order to stay in the competition and companies that fall behind the perking order will go bankrupt in no time.
- First Solar: also known as FSLR is a large American producer of utility-scale photovoltaics and is excluded from the solar tariffs levied by the American government.
First Solar has a strong global position, the utility-scale solar is also the cheapest and highly efficient type of solar energy production.
- SunPower: also known as SPWR is a mid-scale American producer of commercial as well as utility-scale photovoltaics. They thrive immensely in the residential and commercial sphere due to the high efficiency panels they possess in the market. This also makes them ideal for smaller installations.
- General Electric: also called GE, they are one of the biggest wind turbine makers. The company is however so big that the wind turbines only contribute a small amount of their revenue
- Enphase: going by the acronym ENPH, they make micro-inverters which are used to convert direct current (DC) generated by solar panels into alternating current (AC) that is used mostly by electrical systems.
YieldCos (High Dividends)
YieldCos is a more of a income-centred alternative to invest in renewable energy.
YieldCo is a business that owns and develop renewable energy generation whilst paying high dividends to their investors.
Simply, rather than manufacturing solar panels or wind turbines, they purchase lots of wind turbines and solar panels and then build utility-scale generating assets.
- Pattern Energy: known as PEGI, they basically invest in wind turbine projects. Also, in addition to the assets being held in the Americas, they are currently looking for ways to penetrate Asia, precisely Japan where energy is a bit pricy and the country has a large renewable energy mandate
- NextEra Energy Partners: in North America, NEP is a leading holder of wind and solar assets and it’s a subsidiary of the NextEra Energy (NEE) group of companies. They are one of the biggest and lowest cost provider of electricity in the US
- Brookfield Renewable Partners: also known as BEP, they basically hold hydro dams across the globe with much focus on South America. At the moment, Brookfield is delving into solar and wind alternatives and this has been made easy with the Brookfield Asset Management as back up.
Exchange Traded Funds (ETFs)
Investors looking for ways to enjoy huge investments with minimum risk can buy ETFs that focus on renewables for an instant diversification.
Although ETFs aren’t immune to the risks attached to renewable energy, it protects you from the risk attached to placing heavy investments on individual companies.
Some of the top ETFs for investors to consider includes
TAN (Guggenheim Solar ETF),
PZD (PowerShares Cleantech Portfolio),
ICLN (iShares Global Clean Energy ETF),
PBW (PowerShares Wilderhill Clean Energy),
QCLN (First Trust NASDAQ Clean Edge Green Energy Index Fund),
GEX (VanEck Vectors Global Alternative Energy ETF),
FAN (First Trust ISE Global Wind Energy Index Fund),
PBD (Power Shares Global Clean Energy),
GRID (First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund), PUW (PowerShares Wilderhill Progressive Energy)
NLR (VanEck Vectors Uranium+Nuclear Energy ETF) and several others.
Primarily, ETFs provides great platform for investment in renewable energy and the risks are totally reduced.
Renewables as a function of Policy and Energy
Unlike the traditional oil and Gas, the large scale support and government subsidies for the renewable industry means that the investor is not fully in control of what happens.
The subsidies for renewables haven’t been permanently etched into the federal tax codes or absolutely embraced in the political space. This makes the sector somewhat volatile year after year.
On the other hand, renewables are also affected by the price of oil. This simply means that when the price of oil is high, the field of renewable energy becomes attractive to both the individual and commercial investor.
Although renewable energy sector has become more prominent as each day passes, it is important to note that no individual sector is totally void of risks. The returns on investment you get is dependent on the performance of your chosen sector. There is no guarantee that your investments will yield high returns as a matter of certainty.
Amidst the global energy demands that has given more popularity to renewable energy, it is important to ensure that your portfolio is adequately diversified across a list of different sectors, asset types and geographical areas that can provide a level of protection against risks. This is to ensure that if one of more of your investments plummets, some of your other holdings in a different asset segment or location like REITS may enjoy an increase in value.