Is Renewable Energy Worth Your Investment?
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If you're environmentally conscious and looking to make money, investing in renewable energy might just be your sweet spot. Energy usage is expected to grow by 50 percent by the year 2050. With close to 40 percent of U.S. CO2 pollution coming from fossil fuels burned at power plants, a shift to renewable energy could help mitigate climate change. But is it worth your investment?
Why renewable energy?
Renewable energy resources are those that will never run out — or are unlikely to ever run out. These resources produce what’s known as “clean energy” — energy that produces less greenhouse-gas emissions and less pollution than more traditional forms of energy, like oil and coal.
One recent study found that the renewable-energy sector will receive an investment of over 5 trillion dollars by 2030. This investment will go into new power plants. As Aaron Levit of Investopedia states, “According to a new report by Bloomberg New Energy Finance, by 2030, renewable energy sources will account for over 60% of the 5,579 gigawatts of new generation capacity and 65% of the $7.7 trillion in power investment.” That means we also expect to see the use of fossil fuels fall, down 64 percent from 2013.
In short, if you want to be ahead of the curve and part of the energy of the future, you should invest in renewable-energy stocks. Here's what to consider before you do.
Government policies might affect your return
Since renewable energy is a newer industry, government policies and mandates are also newer and may increase the amount of risk. International climate accords and other world events affect the returns of clean-energy companies. Additionally, government subsidies that once incentivized investors are diminishing as the industry matures. Ensure your portfolio is diversified and managed properly to avoid high risk.
Volatility in renewable energy is not just affected by the government. Unexpected weather can cause outages, which can also affect the market. However, renewable energy is still less volatile than fossil fuels. The oil and gas market collapsed during the pandemic while green-energy stocks held up without issue.
Beware of greenwashing
Like with any other investment, you should do your research before buying in. If you’re investing in a renewable-energy mutual fund or ETF, check out the fund’s holdings and its management. Make sure it’s not investing in companies that distribute for or service the oil industry. Check that the management is truly committed to sustainability. You can check out the non-profit foundation As You Sow to research any fund.
Renewable-energy stocks and ETFs to consider
Invesco Solar ETF (TAN): TAN is the only ETF dedicated solely to solar energy. It’s projected to continue to have gains well into 2021. This ETF tracks 24 solar-energy companies and includes U.S., Chinese and European companies.
iShares Global Clean Energy ETF (ICLN): ICLN highlights renewable-energy companies, tracking the S&P Global Clean Energy Index. It includes wind, solar and other renewable-power sources. As of April 2021, it has a 120 percent one-year return.
NextEra Energy (NEE): This company has two segments — one is a competitive energy segment that operates under long-term, fixed-rate agreements and the other is rate-regulated electric utilities for consumers and businesses. Together, they produce more energy from the sun and wind than any other company worldwide. They invest billions into new renewable-energy projects, which are projected to bring earnings growth of 6 to 8 percent each year, up until 2023. NextEra will also be able to increase its dividend by roughly 10 percent per year through 2022.
People who are successful with investing usually do two things well: They look to the future and perform thorough research. If you could invest in something that is both good for the planet and your wallet, why wouldn’t you? Investing in renewable energy is an investment in a better future — just be sure to do your research on the company, ETF or management ahead of time.