When making investments, nothing is more important than keeping up with the trends. While sudden events could turn the market on its head in an instant, generally speaking, market analysts can predict what is a good investment and what is not, which leads to brokers and investors following their advice.
Well, 2017 has been a very turbulent year. With multiple major elections across the globe and tensions between parties in America, it is no wonder things are off to a rocky start. Especially given 2016, which was a roller coaster of a year, with the American election and many tensions that have risen because of that.
While it may seem wise to hold off on investing while things settle down, now is actually a great time to focus on long-term investments, so keep reading to find out what some of the best investment opportunities of 2017 are.
Healthcare Is A Huge Trend In 2017
One major trend that is affecting a lot of people right now is healthcare. Baby boomers are reaching their mid-sixties to early seventies and are requiring a lot more personal health care than before, so expect the value of medical stocks to increase throughout 2017, making it a very wise market to invest in.
With everyone in the world needing healthcare, from small children to the elderly, it is no wonder that the market is continuing to grow. Experts expect the healthcare market to flourish throughout 2017.
Financial Market Set To Grow In 2017
With baby boomers growing older and retiring, they have to think about how to take care of their money and set budgets for retirement. Throughout their lives, they have accumulated a great deal of wealth, and are now requiring guidance from financial firms in order to set the money aside for their retirement and future. And with people living longer than ever, there is a future to be concerned with. So it’s no wonder that banks and financial firms are set to grow a lot during the year, making it a sound place to invest your money.
Infrastructure To Be On The Rise This Year
With bold promises from U.S. President Donald Trump about rebuilding cities and bridges, infrastructure stocks are set to be really valuable this year. With all of America investing heavily in rebuilding and modernizing old infrastructure, the stage is set for many jobs and investment opportunities in the field of construction and building to come to life.
Small Company Investments Are Doing Great
While it may be surprising, everyone since November of 2016 has been investing in the ever growing small businesses of America. While larger companies may be tempted to earn money, and usually are a good idea, it is also a good idea to set aside a bit of money to invest in smaller businesses to see if it really picks up. Imagine if you had invested in Google before it got popular? You’d be rolling in the money now!
So with all these trends set to become worth investing your money in 2017, make sure that you are keeping current on the news and trends of the year as they change and grow. Happy Investing!
When thinking about the future, one thing that is usually on the top of everyone’s mind is how we’re going to get our energy. While fossil fuels make up the vast majority of how we get our energy, they cannot last forever. We need to start thinking about new ways to get energy.
As of the last few years, inventors and innovators have been trying very hard to answer the questions we’ve been asking. With new developments in solar, wind, and other forms of energy that are within reach, the future has never looked brighter when it comes to switching over to green energy.
However, a monopoly on green energy has not been ascertained. Many companies have tried to make renewable energy into a big business, but many have failed and had to file bankruptcy. So, the question is, is the green energy craze over?
The Answer Is No
While it may seem there’s no secure way to go about it, investing and promoting green energy is more important than ever. With global warming on the rise, it is imperative for us in America to begin seriously thinking about investing more in renewable energy.
People in America may be hesitant to trust renewable, green energy, but that isn’t the case everywhere. In Europe and many Asian countries, they have been embracing clean energy with open arms. Many countries overseas have been on the hunt to turn 100% to green energy. This is reducing their carbon footprint and making it a lot less expensive for the governments to regulate, as well as creating a lot of jobs in maintaining the solar and wind farms. Many people in America feel the same way, but with many governments dependent on money from the oil industry, it can be hard to convince governments to make the switch. So there is no lack of interest, especially if you count overseas.
Where Is Green Energy Thriving?
While it may seem that we have made great strides with our market of hybrid and electric cars, we are nowhere near as close to switching our dependency on oil to renewable energy as other countries. If you look at Denmark, for example, they have switched over 35% of their energy use to renewable sources, leading the world.
And it gets better from there, other countries in Europe have been following the example, such as Great Britain and Germany. It almost seems like a race around the world of who can switch to renewable energy the fastest.
The resources to switch over are within our grasp, it all depends on people’s willingness to try new things and take that leap. Green energy is proven to work.
So while America may be struggling to totally commit to the clean energy market, it is no way representative of the clean energy market around the world, which is wildly thriving. While America may be taking a few steps backwards in many ways, it certainly won’t stop each of us from playing our part in creating a less fossil fuel dependent world.
But it’s not just fossil fuels that will get the nod. The demand for renewable energy sources is exploding, and according to new study, we haven’t seen anything yet in terms of spending on solar, wind and other green energy projects. For investors, that spending could lead to some serious portfolio green as well.
Rising Market Share
The future is certainly looking pretty “green” for renewable energy bulls. A new study shows that the sector will receive nearly $5.1 trillion worth of investment in new power plants by 2030. 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. Overall, fossil fuels, such as coal and natural gas, will see their total share of power generation fall to 46%. That’s a lot, but down from roughly from 64% today.
Large-scale hydropower facilities will command the lion’s share of new capacity among green energy sources. However, the expansion by solar and wind energy will be mighty swift as well.
The Bloomberg report shows that solar and wind will increase their combined share of global generation capacity to 16% from 3% by 2030. The key driver will be utility-scale solar power plants, as well as the vast adoption of rooftop solar arrays in emerging markets lacking modern grid infrastructure. In places like Latin America and India, the lack of infrastructure will actually make rooftop solar a cheaper option for electricity generation. Analysts estimate that Latin America will add nearly 102 GW worth of rooftop solar arrays during the study’s time period.
Bloomberg New Energy predicts that economics will have more to do with the additional generation capacity than subsidies. The same can be said for many Asian nations. Increased solar adoption will benefit from higher costs related to rising liquid natural gas (LNG) imports in the region starting in 2024. Likewise, on- and offshore wind power facilities will see rising capacity as well.
In the developed world, Bloomberg New Energy Finance predicts that CO2 and emission reductions will also help play a major role in adding additional renewable energy to the grid. While the U.S. will still focus much of its attention towards shale gas, developed Europe will spend roughly $67 billion on new green energy capacity by 2030.
Impressive Renewables Growth
While fossil fuels will still be a massive source of power, the growth in renewables will still be impressive. And that impressive growth could be worthy of portfolio position for investors. The easiest way to play it is through the PowerShares WilderHill Clean Energy ETF (PBW PS WldHl Cln En Shs PBW 4.14 +0.98% ).
The $200 million ETF tracks 57 different “green” energy firms, including stalwarts like Canadian Solar Inc. (CSIQ Canadian Solar Inc CSIQ 13.30 +0.23% ) and International Rectifier (IRF). So far, PBW hasn’t lived up to its promise and the fund has managed to lose around 8% a year since its inception in 2005. That’s versus a 7% gain for the S&P 500. Yet, the fund is truly a long term play and could be a good buy at these levels given the estimated spending. Another option could be the iShares Global Clean Energy (ICLNiSh SP Gl Cl En ShsICLN8.68+0.23%), which only has about 35% of its portfolio in U.S. stocks.
For solar and wind bulls, both the Guggenheim Solar ETF (TANClaymore Tr 2 Shs Guggenheim Solar ETF TAN 18.47 +1.48%) and First Trust ISE Global Wind Energy ETF (FAN FT Glb Wind Eng Shs FAN 13.47 -0.07%) make adding their respective sectors a breeze. Cute tickers aside, both the TAN & FAN have been monster winners over the last few years as both solar and wind power makers have once again returned to profitability. With the sun shining and the wind at their backs, the new report could help push share prices higher over the next few decades.
Finally, as stated above, hydropower will be the dominant renewable energy source driving spending in the years ahead. While General Electric Co. (GE General Electric Co GE 27.83-1.59%) exited the hydropower turbine business a few years ago, it still makes software and other products for the industry. More importantly, its recent buy of France’s Alstom SA will put it right back in the driver’s seat of the hydro-market. Alstom is one of the leading producers of hydropower turbines in the world. Not to be outdone, rival Siemens AG continues to focus on small-scale hydro-electric facilities. Both GE & Siemens make ideal selections to play that renewable sources expansion.
The Bottom Line
Bloomberg New Energy Finance’s recent report shows just how far renewables will go towards our generation needs. Given the anticipated spending spree in the sector, investors who choose to “go green” could see their holdings grow along with the demand for energy.
For the last thirty years, the demand for green energy has been multiplied as we can find a large number of new technologies that promise us a satisfying solution to reduce the dependence on natural gas, oil, or coal. In connection with studies made in this field energy usage of the whole world is continually growing. The rate will be nearly 40 % higher over the next two decades. So the need for green energy sources also explodes, and if we are interested in investing in this field, it can mean some remarkable portfolio as well.
The rate of global green investment has increased up to $285.9 billion which is 5% more than the previous years’ peak, which was $278.5. In the last 12 years the total amounts have been invested over $2.3 trillion, and if we recall the new dollar investment peak set in 2015, we can see that terms of Gigawatts of capacity were added as a result. If we look at the numbers of 2014, we can see a considerable rise in wind energy – 62 GW 49 GW in 20114) from the total green power and the solar accounts – 55 GW (45 GW). It is worth observing the regional distribution. An excellent new record rose in Chine that increased the outlays by 17% which means $102.9 billion and about 36% of the world total. The US show us an increase in investments, up 19% – $44.1 billion, in Africa and the Middle East up 58% – $12.5 billion, while India up 22% – $10.2 billion. But a decrease can be seen in Europe by 21% – $48.8 billion which was the lowest rate within the previous nine years.
But how viable is the green energy? We should consider the facts below:
– The source of energy is constant and reliable: there is little to be said that energy provided by the wind or solar generators is sustainable, renewable and continual.– Energy prices are stable: the inflation results decrease or increase in the supply of fossil fuels. The costs energy coming from renewables depends on how much money has been invested in the infrastructure; therefore, we can count with stables expenditures.
– Greenhouse gas emissions are low as they do not pollute the environment.
– The cost of operation is much lower than the fossil fuel procedure claims, which is important if we consider the higher costs of implementation and development.– A large number of jobs can be created with using the green energy plants worldwide.
– Micro-stations can be put up which means to avoid transporting energy from the primary stations.We can select the optimal investment in green energy if we follow a process f.e. like this:
– We should choose stocks that are high-dividend – it reduces the risks of the portfolio without decreasing returns expected.
– It is recommended to select stocks that have low fugacity or low market correlation – it helps to avoid the risk of sacrificing returns.– Opting for stocks with small capitalization and lower liquidity brings more liquid counterparts and larger outperform.– Choosing a portfolio that contains individual stocks is a more efficient way to gain the pros of these market anomalies.When we want to invest in green energy, we do need to consider the facts above so we can understand that this has steadily growing potential. The key for investment is to know what we want to get and gain out of this investment.
Our GreenBiz Evergreen column brings to light GreenBiz stories from the past that remain relevant today. If you scratch your chin over RECs and PPAs, this corporate renewables buying guide has been defining the details since it originally ran in November 2015.
Do you want those RECs bundled or unbundled? And will your PPA be physical or virtual? Have you even thought about the annual financial implications of the ITC?
For the uninitiated, the variety of ways companies can throw their weight into the market for renewable energy quickly starts to devolve into alphabet soup.
Still, with more companies setting sustainability targets or eyeing falling wind and solar costs with heightened interest, replicable models for businesses to invest in renewable energy projects are increasingly in demand.
But we’re not talking about just any green energy certificate of participation. More businesses are focusing on the concept of “additionality,” or making sure their money truly makes a dent in new renewable energy capacity — especially as the financial conditions for investment are also becoming more favorable.
“The landscape has changed a lot in the last two to four years,” John Powers, vice president of business development for clean energy broker Renewable Choice Energy, told GreenBiz. “In certain regions of the U.S., it is cheaper to lock in long term agreements with fixed rates that are significantly less than what power trades for in those same markets.”
As the American Council on Renewable Energy (ACORE) has illustrated, investment in clean energy takes on many forms and has increased at variable rates over the last decade.
Activist groups such as Greenpeace, along with more business-friendly NGOs, such as the World Resources Institute, World Wildlife Fund and Rocky Mountain Institute, are increasing their calls for action. The new Clean Power Plan and upcoming COP21 United Nations climate talks add to the urgency, with groups such as CDP, We Mean Business and the RE100 signing businesses up for clean energy commitments.
Still, realizing that there may be an opening to invest in clean energy isn’t the same as hammering out a coherent strategy on renewables.
For one, renewable energy deals that are becoming more popular in some states are impossible to replicate elsewhere due to the way power markets are regulated. Challenges such as sustainability budget constraints, limited manpower or unclear environmental commitments also can come into play.
“The key thing for businesses is to figure out what they want to get out of it,” said Jennifer Martin, executive director of green power standard-setter the Center for Resource Solutions. “If you’re manufacturing consumer goods, you don’t want to have to develop a whole energy business.”
For those interested in the marketing and reputational benefits of buying clean energy, “green tags” or credentials linked to carbon credits or offsets, could suffice. Those interested in reducing exposure to energy pricing volatility often commit to a long-term renewable energy procurement deal. Others are exploring the potential returns on clean energy equity investments.
“There’s definitely a growing sophistication among buyers of renewable energy,” Powers said. “To respond to that, we need a growing sophistication in product offerings.”
Green tags, Renewable Energy Certificates, Renewable Energy Credits, Renewable Electricity Credits, it’s all the same concept: ensuring that a company gets credit for supporting renewable energy.
Martin, whose nonprofit Center for Resource Solution sets the standards for what qualifies as a REC through its Green-e program, said that RECs serve as a paper trail for clean energy.
“RECs are really the accounting mechanism for tracking who uses renewable energy at the end of the day,” she said. “No matter what kind of transaction you’re doing … the RECs need to flow from the generator to the end user.”
In some states, many of them concentrated in New England, energy utilities face high Renewable Portfolio Standards (RPS) that increase pressure to obtain renewable energy credits. While the supply of RECs has constricted in markets such as Massachusetts, with solar going for several hundred dollars per Megawatt hour (Mwh), states with either no standards or an excess supply of RECs have resulted in depressed prices.
The issue of additionality — that a project wouldn’t be built without investment from a certain company — arises when the price of RECs drop so low that it becomes difficult to determine whether purchasing the credits actually will add to renewable energy capacity. In addition to the wide regional variation in pricing, Martin said that the debate over additionality can sometimes miss the point.
“What businesses want to do is be able to tell a story about renewable energy,” she said. “What they’re trying to do is show that they made a difference.”
Similar logic often extends to carbon offset projects designed to compensate for emissions.
“The business case for either buying RECs or offsets is because you want to make an environmental impact, or make certain claims that are important to you, your shareholders or your customers,” Powers said.
Anyone that wants to claim that they are using green power, even in the case of a company that directly procures their own energy in the form of on-site systems such as rooftop solar, will involve a REC to document who is using the renewable power.
The pricing for RECs, however, can vary from less than $1 per Mwh to hundreds of dollars due to the regional supply and demand equation dictated by portfolio standards and clean energy supply. The reason RECs can get so competitive in markers with high portfolio standards is the specter of a compliance payment if the targets aren’t met.
“They’re hugely variable by region,” Martin said. “One of the things that is going to change the calculus is the new Clean Power Plan. It could be very beneficial for the state to increase the amount of renewable energy.”
2. Unbundled RECs and REC swaps
One quirk of the REC system is that the credits can be traded. They are considered “unbundled” when the certificates are sold separately from the physical energy produced. For example, a company may want to buy energy from a remote solar farm, where the energy is sold to a third user or utility, with the company still claiming the RECs.
“Where unbundled RECs get criticism is in the argument around additionality,” Powers said. Because a REC is about the intrinsic value of producing energy in a clean way (with negligible or no carbon emissions), they may be sourced from a large, long-established wind farm, as opposed to being financially additional to a brand-new power producer.
To this end, Martin noted that one element of green power guidelines in flux is “the new date,” or how long renewable energy developments can be considered new enough to warrant credits. The current standard is 15 years, and the proportion of clean power required within a development also has been clarified over time.
3. Carbon offsets
On a fundamental level, carbon offsets are a way of paying for infrastructure projects that reduce net carbon emissions. They are useful because it is often impossible for a business to not produce any carbon, meaning that offsets are used to balance out greenhouse gas (GHG) impacts.
A variety of offsets can mitigate GHGs, from planting trees that sequester carbon to corporate energy efficiency programs or preventative measures that generate varying degrees of controversy, such as flaring leaching methane gas from unregulated landfills.
Buying renewable energy to power a corporate office is nowhere near as easy as picking a provider and signing a contract.
In deregulated energy markets, customers can buy retail wind or solar and slap it right on the company real estate. Or, they can sign a long-term deal to buy the power generated by an off-site renewable energy plant.
In regulated utility markets, things can get complicated fast. Deals are more theoretical and often rooted in hedging energy prices. The outcome of providing capital to finance new renewable energy capacity is the same.
“The corporate buyer — Google, Walmart, etc. — they’re providing that structured and guaranteed revenue for a long period of time that allows a bank to say ‘OK, I’ll loan you $200 million to build this thing,’” said Peter Mostow, an energy attorney with the law firm Wilson Sonsini Goodrich & Rosati.
Still, the barriers to entry for various types of power purchasing remain high, feeding into interest in new forms of aggregated clean energy developments.
With all of these deal types, much bigger energy diplomacy concerns also come into play.
“This is really contentious territory,” Mostow said. “You’re striking right at the heart of the utilities’ business models.”
4. Physical PPAs
Say you’re a company that wants to buy electricity generated at an off-site wind or solar farm to power a given real estate asset. If you’re game for a 12-15 year commitment, a Power Purchase Agreement (PPA) could be your answer.
“A regular PPA, they never say it, but its sometimes called a ‘physical delivery PPA,'” Mostow explained. “Electricity is actually being generated at point A, moved across the wires, and delivered at Point B.”
(At least that’s the idea logically speaking. As Mostow noted, “In reality, the electrons that are generated at a solar plant never actually go to the customer. The grid is a big giant balancing or accounting system.”)
Regardless of where the electrons land, a company’s commitment to buy power for a term usually longer than a decade helps a renewable energy developer and potential lenders ensure that there will be a buyer for their power.
5. Virtual PPAs
Physical PPAs can work in California or other deregulated energy markets, but they can’t work in regulated markets with tight limitations on who is able to sell power.
As a workaround, companies, renewable energy developers and third party brokers have devised “virtual” or “synthetic” PPAs as a way to reap the financial and reputational benefits of PPAs — but without any power actually changing hands. While a company still powers its operations with grid-supplied electricity, both they and the developer benefit from a long-term fixed cost deal on energy generated from a project (which can be physically located anywhere).
Say the agreed-upon rate for a wind farm VPPA is $40 per megawatt. If the wholesale rate for energy generated by that project drops to $30 on a given day, the developer is buoyed by the extra $10 from the corporate buyer. But if grid prices spike and going rate for wind power jumps to $50, the scenario is reversed and the corporate buyer gets the extra $10.
“That $10 helps the corporate customer offset the utility bill that they’re paying at their data center of wherever,” Mostow said. “It’s a hedge for them, too.”
Powers adds that virtual PPAs also make sense strategically for businesses with a highly distributed power load, like a slew of retail stores, or if facilities are leased instead of owned.
6. Aggregated purchases
One obvious pitfall for PPAs is the high financial barrier to entry, with utility-scale renewable energy developments usually carrying a price tag well into nine figures. If that’s out of the question at any one company, what about pooling resources in an aggregated or syndicate-style deal?
“Think about it as getting people together and buying in bulk together,” Powers said.
While hammering out a deal with five equal parties is possible in theory, he noted that coordination can be difficult because “this is a CFO-level decision at every company that’s making it.” Alternatively, having an “anchor” company — or one company willing to take on the bulk of the investment and then sell off smaller stakes as PPAs — also could work.
7. On-site power
While PPAs deal with utility-scale solar, corporate customers operating in deregulated markets also have the option of buying or leasing a renewable energy generation system (often solar) for on-site use. Adobe, Coca-Cola, Google, Kaiser Permanente and Kohl’s are among those pursuing these arrangements.
“On the on-site solar side, the commercial and industrial segment has been a bit underserved,” said Hervé Touati, managing director of RMI’s Business Renewables Center. “It has not seen the same growth as the utility segment or the residential segment. I think that will be corrected.”
As with most emerging markets, the evolution of clean energy has brought with it more variation in the financial maneuvers that companies and investors seek out to make money on a trend.
One of those avenues is equity investments — a tack taken by companies including Ikea and Google, Touati said — which vary in structure but share a common emphasis.
“There are few companies that have done investments,” Touati said, which differs significantly from actually buying renewable power. “One is about making money off investments, and the other is about procuring green energy.”
Uncertain returns, however, can be a dealbreaker.
“The thing about energy as an investment is that energy is not a high-margin business. It’s an infrastructure business,” Mostow said. “I’ve seen a lot of my corporate clients look at maybe we should just be equity investors. It doesn’t usually meet their hurdle for investment.”
8. Venture capital, private equity or stock purchases
More direct is the option for various investors or corporates with available capital to invest in privately held clean energy companies (a $5 billion market as of 2014, according to ACORE), or to buy stock in those that already have gone public (an $18.7 billion segment last year).
At the project level, another option is to be a stock or equity investor in a solar or wind farm.
9. Tax incentives
One key variable in the case for renewable energy equity investment is the federal Investment Tax Credit (ITC) currently offered to renewable energy project owners and investors.
The catch: With the 2006-era policy set to expire for residential solar in December and the commercial credit slated to drop from 30 percent to 10 percent, uncertainty about the future of this revenue mechanism is starting to loom larger.
In the lexicon of green energy, public entities created to own renewable power projects and deliver returns in the form of dividends — a class known as YieldCos — have started to come on strong in recent years with larger renewable energy companies such as SunEdison. The new packaging of clean energy investments isn’t coming without growing pains, however, and has in some ways lumped renewables into broader volatility.
“Investors have stepped up to finance a host of energy-related products in recent years, contributing to a glut in supply that has spurred a dramatic collapse in commodities prices,” Bloomberg recently reported. “That’s helping to fuel additional market scrutiny of commodities’ players — from giants such as Glencore to U.S. shale explorers and even solar panel operators.”
11. Green bonds
On the lower-risk end of the spectrum, green bonds — or government bonds tied to projects designed to combat climate change — are an area that clean energy advocates have been hopefully watching for years.
Often pitched as a way for smaller investors to contribute to daunting infrastructure financing, the market is expected to exceed $60 billion. Up next: settling on what really counts as green infrastructure and testing investors’ appetites for continuing to grow the market.
12. Securities, mutual funds and beyond
While equity investments are more universally understood financial arrangements, more esoteric mechanisms associated with Wall Street are also making their way into the market for clean energy.
Goldman Sachs claims credit for the first rated “securitization” of solar energy, or converting an illiquid asset into a security, for a Japanese bond project. Investing in mutual funds that include an increasingly broad array of renewable energy options is another option.
Renewable Energy ETFs Are Popular With Socially Conscious Investors, But It Doesn’t Make Them Good Investments.
A number of renewable energy ETFs have emerged over the past few years as concern over the environment has grown. However, many of the stocks in those renewable energy ETFs have only limited investment appeal.
Many of those stocks are only profitable—if at all—because they receive government subsidies. But many governments around the world are cutting subsidies for renewable energy investments as they look for ways to deal with their ballooning budget deficits.
Themed ETFs like renewable energy may have a lot of emotional appeal. But when you indulge in theme investing, you may allow a theme or concept to take a central place in your investing decisions. Usually the theme or concept includes some prediction about the future that has some truth in it, and will make noticeable changes in society. You may assume that if you can just get on-board that theme or find an investment with its future tied to it, you are bound to make money.To cut your risk, we recommend that you focus on individual renewable energy stocks instead of a renewable energy ETF. Above all, look for stocks that already have a sound base of other operations—such as a wind-farm operator that also operates natural-gas fired power plants. This diversification helps offset the risks of expanding into renewable-power production.
In other words, you are buying what you might call a “Big Idea” without making certain that a particular investment has a workable business concept, or the management strength and integrity that it needs to overcome competition and profit from it.
Themes like renewable energy ETFs can cause you to overlook crucial details. A key problem is that if the theme is your overriding investment consideration, it’s all too easy to get lazy about the details. You may feel that all the hard work has been done for you. You may come around to the view that the theme is so powerful that you can safely disregard p/e ratios and other measures of value and risk. You may wind up basing investment decisions on offhand projections or self-serving advice from promoters. That can distract you from looking at the stocks, and their fundamentals, that an ETF holds.
Keeping those facts in mind can help you spot stocks with extra potential. But if you let the theme make the decision for you, you are sure to overlook some risks.
You may feel that investing in renewable energy ETFs has the added benefit of letting you support worthy social objectives. But again, you can’t let that dictate your investment decisions. At the same time, brokers like themed investments such as renewable energy ETFs because it gives them a rationale to recommend them to you.
In general, we like ETFs. Their MERs (Management Expense Ratios) are generally much lower than those of conventional mutual funds. That’s because most ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.
- ETFs are less expensive to hold. Some ETFs give you a low-cost way to invest in a narrow market segment. But at the same time, that’s typically cheaper than investing in a mutual fund with a similar focus. Fees can be as low as 0.10% a year for many ETFs vs. mutual funds that can charge you 2% to 3% or higher on their fund. That means ETFs can save you a lot of money and boost your returns if you are investing over time.
- ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading.
- Low turnover. Shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital gains taxes generated by the yearly distributions most conventional mutual funds pay out to unitholders.
ETFs do have their risks. For example, if you’re considering investing in a renewable energy ETF, consider our advice below:
- ETFs can be volatile, depending on the stocks they hold, even with the diversification they offer.
- Know how broad the fund is, so you can determine its volatility. The broader the ETF, the likely less volatile it will be. A sector-based ETF like one that tracks resource stocks may be very volatile.
- Know the economic stability of countries when investing in international ETFs. It’s also good to mention that foreign leaders may not be your ally when it comes to passing legislation that can affect your investments
- Know the liquidity of ETFs you invest in.
- Determine if the ETFs you buy will include capital gains distributions.
- Consider buying ETFs in a lump sum rather than periodic small amounts to cut down on brokerage fees.
- Never forget that fads change. When a fad fades, as they all do, the fund’s liquidity many die out with it. The manager may have to dump the fund’s holdings when demand is at its weakest, forcing prices lower than they would otherwise go. Likewise, the same investors who are excited about investing in renewable energy companies are also apt to flee when stock prices start falling.
- Don’t invest in ETFs that show wide disparities between the stocks they hold and the investments that the sales literature describes. Many ETF managers describe their investing style in vague terms.
Are you currently invested in a renewable energy ETF? Has it been profitable for you? Share your experience with us in the comments.
1. Solar and wind are cheaper than you think!
Despite an investor assumption that renewables are expensive, “this stuff is really cheap”, said Bloomberg New Energy Finance’s Jenny Chase. There are plenty of places where solar and wind already make economic sense, provided investment conditions are right.
Bloomberg estimates that the world will have 600GW of photovoltaic solar worldwide by 2020 (an increase from about 150GW today) and 1,900GW by 2030; making up 5-7% of the global electricity mix. These positive predictions are based on the falling prices of renewables.
2. Policy uncertainty is the biggest obstacle to investment in renewables
Governments are failing to take up the challenge and lead the way on renewables. The energy debate has become too politicised, argued EY’s Ben Warren, and a lack of cohesive and stable policy has undermined a “long-term view on investment in renewable energy”. Among the problems are skewed tax relief, fossil fuel subsidies and retroactive changes to renewable incentives, which make them risky to investors, panelists said.
Politicians are also listening to the wrong people, said Bruce Davis of Abundance Generation. The increasingly vocal lobbying of those with vested interests in slowing the growth of renewables is being heard more than the majority of voters who are in favour.
3. Regulators are getting better, although they still have ‘sharp teeth’
“There is a world of difference between the old [Financial Services Authority] and the new FCA approach,” he said. “That is not to say they don’t have sharp teeth, but they do make efforts to listen to evidence and form policy based on real experiences of platforms.”
4. Germany, Denmark and South Africa are good role models on renewables
Germany and Denmark have made great strides on renewables – partly because they have a diverse and large ownership base, said Co-operative Energy’s Paul Monaghan. Germany has over 800 renewable energy co-operatives and the government has made – and stuck to – strong incentives for renewables, while in Denmark, communities have the right to invest and profit from wind turbine programs, which creates a broad political base for policy support.
The South African government has also done well on getting the best prices. It held a competitive tender, asking a simple question: “who wants to sell us wind and solar power for the lowest prices?” It was a simple but effective strategy that was clearly aligned with the long-term goals of government and also creates sustainable jobs locally, Davis said.
5. Business is leading the way
Corporates and individuals are taking the lead and hoping that policy will eventually follow. Business interruption risk and price volatility mean that an increasing number of businesses are taking a strategic approach to energy procurement. “Direct procurement of renewable energy might just prove to be one way for the sector to reduce its dependence on government policy,” Warren said.
Software company SAP’s Will Ritzrau said of his company’s policy: “we look at renewables as a long term approach to control our energy cost and thus margin impact.”
6. We need a diversity of projects
Having as many models as possible, from small-scale initiatives to large-scale projects, will be the key to financing the necessary energy transition, Emma Howard Boyd said.
According to Davis, co-operatives are good models where there is a motivated community with the requisite time and expertise. But it’s also important to have schemes that appeal to commercial developers and make them more open to community involvement.
7. The public are up for renewables
Poll after poll shows that people have bought into the idea of renewables, Monghan said; now we have to unlock the big institutional investors. Crowdfunding can provide an easy way for people to get involved in projects that have already been vetted and will offer reasonable returns. Plus, organisations such as Share Action and Divestment are helping people have control over where their money is invested.
8. Developing countries could spearhead innovation
Sharma pointed to innovations such as M-PESA, which have allowed the renewable energy sector to leapfrog in Africa. Enterprises such as Off.Grid:Electric are using a service-based model and selling pay-as-you-go solar that can be paid for daily using mobile money, akin to setting up a micro-utility.
9. Power of the internet
It’s hard to imagine how crowdfunding would work in an internet-free world, Chase said. The “internet of things” and broadband availability will enable automated and smart energy consumption. Large amounts of information will be needed to make the energy markets work. Soon smart technology will control various appliances so your fridge will stop cooling if the power price spikes, and other devices can be switched on or off automatically according to need.
Social media – and the internet more generally – have the potential to accelerate the awareness and acceptance of new technology. New and viable ideas, especially if they benefit individuals, will survive and grow. However, growing into a conservative market too early is also risky and some big companies may be a little more cautious about adopting potentially too-radical innovation.
10. There’s some way to go
There have been leaps and bounds in terms of innovation and affordability, which have helped renewables to become an attractive investment opportunity. But if we are to reach the kind of levels required for a genuine energy transition, there’s much more to be done. Investors should continue to view opportunities realistically, but also remain open-minded enough to recognise – and tap – the great renewable opportunities that exist.
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