A Contributed Post: Why Investors are Embracing Renewable Energy
Investment in renewable energy is currently growing at more than 10 percent per year and according to a recent report from BCC Research will hit nearly $800 billion in 2019. That are big bucks and it is part of a broader move by investors to clean energy.
What is behind the shift? After all, investors were slow to put their money into early solar and wind generation projects. The answer lies in the combination of rapidly maturing technologies which are not only cheaper to install and maintain but also offer reliability over the long run. Combined, this leads to the economic viability investors look for when deciding where to put their money.
Regulatory Certainty
Besides the technological hurdles, one of the biggest barriers to investment in renewable energy was the regulatory environment – even in the face of rapidly rising levels of CO2 in the atmosphere.
One of the drivers of the regulatory hurdles was fear from corporate interests, many of whom thought they would lose out if the energy economy transitioned to renewables overnight. However, more corporates are starting to move beyond paying lip service and are starting to invest in cleantech.
At the same time, governments have begun to play a major role in driving the shift the renewable energy – through the reasons vary. In China, the move has largely been driven over concerns about smog in the country’s densely packed cities. While Germany and other European countries have begun to move towards renewables to ease fears about nuclear energy and reduce reliance on natural gas from Russia.
These factors have helped to drive adoption of renewables, so much so that many countries have begun to rethink subsidies. While the move away from subsidies could slow the conversion to renewables in the short-term, many analysts believe that we have already reached the point of no return when it comes to energy generation going green.
Investors Have More Choices
Another reason why investors are embracing renewable energy is that they have more choices than ever before. Sure, there are imbalances in the market, but this can create opportunities investors.
For example, oversupply of solar panels and related parts create an opportunity for investors to short the manufacturers of these products – effectively betting that their share prices will fall in the near-term.
Meanwhile, several Exchange Traded Fund (ETF) products have come onto the market in a recent year and these offer investors the change to put their money behind a wide variety of renewable energy-related stocks at the same time.
Granted, none of these investments are without risk, but given the strong growth in the sector and the need to transition to renewable energy, it would appear this is a safer place to invest in. And when it comes to investments, it’s imperative that you do your due diligence to ensure that each investment is backed by sound data—whether you’re investing in a growing startup or putting your dollars into places that buy cars.
Though the key with any investment is to do your homework beforehand and have a clear idea for what you want to get you of it.
Betting on Bonds
Besides stocks and ETFs, investors can also bet on bonds. In fact, so-called “green bonds” have become big business and for many investors the promise of the returns these instruments promise is too hard to resist. This is especially true as interest rates continue to rise, which has the net effect of pushing up borrowing costs for issuers.
Another reason why investors like bonds are that they are a stake in the debt held by a company or a project. This means that they have a preferential position over stockholders if a green project or company falls into trouble.
For large institutional investors, this can be an opportunity to acquire assets on the cheap if things don’t go according to plan. Granted, betting investments will fail is not the main driver for most bondholders, but it can be a good strategy if there is value to be had – even in projects which are minimally viable.
What Does This Mean for You?
You might not have a billion dollars in your bank account, you might not even have $10,000, but investing in renewable energy should be part of your strategy when you look at the energy sector.
Sure, the market has its ups and downs and some companies in the space have run into troubles (remember Solar City?). But investing in renewable energy is a way to profit from what might be the most transformative economic transition in human history and this could yield you a massive windfall.
Just remember there are no shortcuts to making money when investing and as such, you should always do your homework.
