With uncertainty around energy supply and an ensuing climate crisis, could investing in renewable energy be a fruitful opportunity? Let’s find out more.
At the moment, there is more talk about renewable energy than ever before. Events are coming together to show that renewables are the way of the future. In this situation, investing in renewable energy looks like a great idea, but, of course, there are pitfalls. No investment opportunity is guaranteed.
In this article, we’ll look at what renewable energy is, why it could be a good investment at this time, and your options should you decide to invest.
What is renewable energy?
Renewables are natural sources of energy that are unlimited and can be quickly replenished. The timescale for replacement is short, in many cases instantaneous. However, that they are unlimited is not the only benefit of renewables:
- Renewables do not cause carbon emissions into the planet’s atmosphere, making them better for the environment and a positive in the fight against climate change
- After an initial outlay on infrastructure, renewables are relatively inexpensive to produce, making them more efficient
- Renewable energy has a democratising effect in the world, diminishing the power of traditional energy-rich nations
Examples of renewable energy include solar, wind and geothermal. Nuclear power, while technically not a renewable, shares many of its benefits. They are the opposite of the fossil fuels (coal, oil, gas) we have traditionally used to power our world for the last two hundred years.
So far, so good, but the seismic shift from fossil fuels to renewable energy cannot happen without significant investment. Although running renewables is more efficient than fossil fuels, we still need to pay for the solar panels, wind turbines, heat pumps and other examples of renewable energy infrastructure – and they are not cheap.
The good news is that the opportunity for a return on this investment is greater than ever before.
The rise of renewables
Demand has never been higher for renewable energy. This is because the world has woken up to the fact that our reliance on power from fossil fuels is unsustainable. There are several reasons for this realisation.
Firstly, we are running out of fossil fuels to burn for energy. Fossil fuels are limited by definition, and we are near to reaching those limits. Experts believe that if we continue burning fossil fuels at current rates, resources will run out by 2060. That’s less than 40 years away.
Next, fossil fuels are expensive – and prices are rising faster than ever. You only have to look at your household energy bill or fill up your car with petrol to discover the situation we’re in. Renewable energy is a way to lower these costs and restore the balance.
One of the reasons energy prices are so high right now is Russia’s invasion of Ukraine. Russia controls a large proportion of the world’s natural gas supply, but as sanctions dictate that many other countries can’t buy Russian gas, the price of alternative gas shoots up. It shows how the cost of fossil fuels can be influenced by world events and how the world is hostage to regimes we may prefer not to be involved with. The great thing about renewables is that any country can set itself up as an energy producer. After all, if you’ve got sun, you can create solar power. If you’re a windswept island, you can use wind turbines to harness the wind’s power.
Finally and perhaps most importantly, we are in the centre of a climate crisis. We need to act now to stop disastrous effects in the very near future. Replacing fossil fuels with renewables is essential to reducing carbon emissions and combating climate change.
Other reasons to invest
As well as demand for renewables being high (and rising), there are numerous other points in favour of investing:
- Current investors are experiencing growing yields on their investments. Imperial College and IEA research found that between 2016 and 2021, renewable energy investments yielded a return of 75% compared to -20% for fossil fuels
- The renewable energy industry is growing, adding output capacity and job numbers every year
- The level of innovation in the renewable sector is high. For example, the technology around high-capacity batteries that store energy created by renewables is constantly improving. This trend will continue long into the future
Clearly, the signs are good for investing in renewable energy. But, if you wanted to invest, how do you do it?
Options for investing in renewable energy
The easiest way to invest in renewable energy is by placing your money in clean energy Exchange-Traded Funds (ETFs). These funds invest in companies that operate in the sector, so as the market grows, the value of your investment grows with it. The advantage here is that your risk is diversified because you’re investing in a group of companies.
Alternatively, if there’s a renewable energy company that you like the look of, and its shares are publicly available, you could buy some stock. Of course, you have more risk than you would with an ETF, but the rewards may be there.
If you really want to make a difference in the fight against climate change and the adoption of renewables, you could start a business in the sector. Think about how your skills and experience could benefit the world. Then, just do it.
What will you do?
Investing in renewable energy represents an opportunity to grow your capital safe in the knowledge that you are helping the planet.
However, you must be careful. Not every investment pays off. Do your research and find the investment vehicle that is right for you.