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Investing in Renewable Energy: From Fad to Genuine Opportunity

It wasn’t long ago that the idea of investing in renewable energy stocks was simply the domain of ESG funds, and not for anyone who was just trying to maximize their profit potential. Over the past decade or so, however, advances in innovative technologies have created a shift toward more environmentally friendly business practices.

According to the EIA (Energy Information Administration), the primary sources of power generation in the U.S. for 2020 was natural gas (40%), coal (19%), nuclear (20%) and renewables (20%). Breaking that last section down even further, renewable energy sources were listed as wind (8.4%), hydroelectric (7.3%), solar (2.3%), biomass (1.4%) and geothermal (0.4%).

Globally, the estimated value of the clean energy market was around $882 billion as of 2020. By 2030, the projected value is roughly double at $1,978 billion with a CAGR of 8.4%. For investors, this means that there are now more opportunities for profit in the green energy industry than ever before.

Be sure to check out our ESG Channel to learn more.

A Note About Nuclear Energy

Nuclear energy is sometimes lumped together with renewables when talking about power generation. The main issue with nuclear power plants is how the disposal of radioactive waste products is handled. No workable solution has yet been put forth that’s an improvement over current methods.

Perhaps the more pressing concern for investors, though, is the time it takes to get a nuclear power plant up and running. From conception to start generating power – the full process can take decades. Even long-term investors aren’t likely to invest in something that won’t hit its profitability break-even point for 30 years or more.

The Clean Energy Industry Leaders

For the most part, green energy consists of three major players: wind, hydroelectric and solar. Together, these industries provide 18% of the total power generated in the U.S.


  • Wind

Wind farms are a common sight in the American Midwest where there are few tall buildings and plenty of breezy plateaus. China is currently the global leader in wind power generation, but new offshore wind farm projects could open the doors to higher growth in the industry over the next decade.

Unfortunately, wind power comes with several downsides which severely limit widespread implementation. For one, wind turbines need to be built where there are consistently strong winds in order to generate stable power flows over time.
The other issue involves the size of the wind generators themselves. While smaller scale versions are offered for rural farm and residential applications, the larger wind farms require wide open spaces away from tall structures or low-flying aircraft.

  • Hydro

Hydroelectric power plants are similar to wind farms in the sense that they are restricted to certain locations. Flowing water must be present in order to turn the turbines that generate power.

One alternative to dam limitations is to use tidal energy to drive the hydroelectric plant’s turbines. Some small-scale applications have already been built with successful results, and could kick off a new wave of expansion in the hydroelectric power industry.

Below is a quick reference for investors who are interested in wind or hydroelectric energy companies:

  • NextEra Energy (NEE)
  • Brookfield Renewable Partners (BEP)

Be sure to check our Portfolio Management Channel to learn more about different portfolio rebalancing strategies.

The Shining Beacon of the Renewable Energy Industry

No discussion about green energy is complete without talking about solar power. Compared to other clean energy industries such as wind or hydroelectric, solar arguably has the lowest environmental and ecological impact. And unlike wind or hydroelectric plants, solar applications have far more options as to where they can be used.

The impact of technology in the renewable energy sector has been undeniable. And nowhere does this stand out more than in the solar power industry. In 1992, the biggest breakthrough in solar photovoltaics came out of the University of South Florida with a thin-film cell capable of 15.89% efficiency. Today, the average efficiency of a solar panel is around 17% for individual residential applications. Solar power plant facilities regularly achieve efficiencies above 20%, while new breakthroughs in research engineering have demonstrated panels that can reach close to 50% efficiency.

Solar installations work best in areas that receive a lot of sunlight making their utility less attractive in climates with regular cloud cover. This makes areas such as desert climates more ideal than rainy ones. Because no energy is produced without sunlight, solar plants require battery storage to keep power flowing steadily at nighttime. This means that battery technology, PV chipmakers and solar businesses are all part of the same green energy industry.

While the solar industry only makes up 2.3% of the total power generated by U.S. power plants, its growth is the highest of the green sector – and it’s expected to quadruple in size by 2030.

Here are the top three solar stock/ETF plays for investors:

  • Invesco Solar ETF (TAN)

The Future of the Solar Industry

The potential benefits of solar technologies are virtually limitless with applications ranging from space-based solar arrays that transmit power back down to receiver plants on the planet’s surface to wearable solar tech interwoven into clothing fabric. Any type of satellite launched into orbit uses solar panels to capture sunlight and power its equipment, while solar panel roof installations are becoming more and more common in residential neighborhoods.

As solar efficiencies tick up higher thanks to new technological advances, expect to see more areas incorporate solar power into their energy grid infrastructure as well.

The Bottom Line

Investors looking for exposure to renewable energy companies have a number of options from which to choose.

Directly investing in a utility company that primarily uses green energy power plants can be a good addition for conservative or income-oriented investors, while PV chipmakers may appeal more to growth investors. Whether you are looking for exposure to a particular segment of the clean industry sector or just want a broader breadbasket of stock selections, there are plenty of options available to fit virtually any desire.

Make sure to visit our News section to catch up with the latest news about income investing.

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Jan 20, 2022