Is investment in clean energy the way forward?

As fossil fuel reserves begin to run out and become increasingly expensive – both practically and politically – to access, the eyes of investors are increasingly turning toward the renewables sector. Once dismissed as a product of crackpot ideology, this is now a growth area seen as one of the best hopes for meeting long-term energy demand, while awareness of the environmental damage done by fossil fuels has also persuaded more and more people to support it. Although it used to be seen as an area in which public sector investment might lead to gains over the very long-term, it is now at a point where it can prove rewarding to the private investor.

The importance of green energy

With 97% of climate scientists in agreement that the world is getting warmer due to human activity, and with the consequences of that beginning to show in increasingly erratic weather patterns, consensus is now emerging around the importance of reducing our global use of fossil fuels. At the same time, we know that the supply of those fuels is limited, so sooner or later we are going to have to find alternatives. Between them, solar power, wind energy and hydroelectric power generation offer a source of power that is fully sustainable over the long-term and could enable us to maintain our present lifestyle – and extend it to everyone on the planet – for an indefinite period, at manageable cost. The challenge lies in developing the infrastructure needed to capture it; the solution depends on both scientific and financial innovation.

Investing in the industry

With so much going on in renewables, there’s a lot for would-be investors to learn, so in the absence of personal expertise in the field, this remains an area where it is advisable to seek professional help. That said, it could be a very lucrative area, especially for the long-term investor. What’s important is to sift through the mass of startups to identify those with the technical and business expertise to have real potential, and to assess currently successful sector organizations on the basis of the flexibility they have demonstrated in a market which is still likely to undergo some significant shifts. As with any sector, there are safe bets available, but it’s always more financially rewarding to identify companies with impressive potential that has yet to be widely recognized.

Retirement investments

Green energy is a particularly appealing sector for those looking to make retirement investments. Because it is expected to grow significantly over the coming decades, with companies that become well established at this point likely to expand considerably in the future, it’s a sector where long-term investments have the potential to be especially lucrative. It’s also a sector that is focused on looking to the future, so in providing something for themselves upon retirement, investors can also help to create a better, more secure world for their grandchildren.

Making it happen

Contrary to many people’s expectations, it is emerging economies that have proved willing to invest the most in renewable energy resources. China is the world leader, with its massive hydroelectricity projects putting it way ahead of its nearest competitor, the European Union. Brazil and India are also in the top ten, with investments made at a much bigger social and political cost than in the case of the United States, which comes third. Having decided to turn around its energy policy and move from nuclear to renewables following the Fukushima disaster of 2011, Germany is now rapidly climbing up the rankings in its own right, showing what can be achieved if the will is present.

Each of these countries has a different patchwork of public, private and third sector involvement in its green energy projects, but what they demonstrate between them is the enormous flexibility offered by renewables, both in terms of engineering possibilities and in terms of investment structure. The sector is increasingly competitive, but leading players are now beginning to emerge such as Calpine and Siemens.

Green portfolio management

Investing in renewables is made easier for the average person by the existence of specialist companies focused on managing green portfolios. Anybody can invest in the type of green energy bonds first issued on a large scale by Warren Buffett, but for bigger potential returns, stock is the way to go. Off-the-shelf solutions can be found through the likes of the PowerShares WilderHill Clean Energy Fund and TAN, but working through an investment management specialist makes it possible to move into higher risk areas with better rewards – and, in the process, to support the most innovative areas of green energy development, helping to drive the industry forward.

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