Global energy demand rises year after year. Total global energy consumption is predicted to increase by approximately 50% by 2050, driven by expanding economies and developing countries. Simultaneously, scientists are warning of rising temperatures produced by carbon dioxide and other greenhouse gases.
With temperatures expected to rise by more than two degrees Celsius, many countries are looking for ways to replace fossil fuels with renewable energy sources. This opens a market opportunity for investors interested in profiting from green energy investments.
Green Energy Investments
Green energy refers to any technology that may substitute renewable sources for fossil fuels, such as solar, wind, or hydroelectric electricity. It can also refer to auxiliary technologies that will be vital in the transition to green energy. Improved battery technologies, for example, can assist transportation networks in transitioning to electric vehicles, and smart grids can assist in reducing total consumption.
According to a new Bloomberg New Energy Finance analysis, global investment in transitional technologies will exceed $755 billion by 2021. To keep on track for zero net carbon emissions, investment in transitional energy will need to exceed $2 trillion between 2022 and 2025, and $4.1 trillion between 2026 and 2030.
According to the National Oceanic and Atmospheric Administration, climate models estimate that global temperatures will rise by 1.1 to 5.4 degrees Celsius by the end of the century.
Thanks to new solar and wind power installations, investment in renewable energy projects reached new highs in 2021. BloombergNEF estimates that solar and wind power facilities will require an average of $1.5 trillion per year between 2026 and 2030 to achieve net-zero carbon emissions by 2050.
Climate investments in emerging nations reached new highs, with the Asia-Pacific region leading the way with $368 billion. However, such investments must continue to rise over the next many decades. To achieve net-zero carbon emissions by 2050, the global investment will need to quadruple over the next five years.
Green Energy Investment Types
There are various methods to profit from green energy opportunities. The most straightforward approach is to identify individual enterprises whose operations rely on the development of alternative energy technology. Individual company research, on the other hand, can be time-consuming, and not all such equities are publicly listed. A mutual fund or index fund with a big portfolio of green energy assets may be a simpler option.
Funds for clean energy
Clean energy is a wide term that encompasses anything from renewable energy to alternative transportation systems. Although this may not be everyone’s idea of green energy, clean energy funds provide an easy option to invest in a diverse portfolio of energy companies.
The Invesco WilderHill Clean Energy ETF is the most convenient way to participate (PBW). As of March 2022, the $270 million ETF tracks 124 different green energy companies, including industry heavyweights such as Canadian Solar Inc. (CSIQ) and First Solar, Inc. (FSLR). So far, PBW has failed to deliver on its promise, with a 10-year return of only 11.34%. However, the fund is a long-term investment with the potential for bigger profits in the future.
Another possibility is the iShares Global Clean Energy (ICLN), which has just over 39% of its portfolio in US companies as of March 2022.
ETFs for solar and wind power
Investors looking for pure renewable options might investigate some of the solar and wind energy ETFs. Both the Invesco Solar ETF (TAN) and the First Trust ISE Global Wind Energy ETF (FAN) make it simple to invest in their respective sectors.
Aside from the cute tickers, both the TAN and FAN have been huge winners in recent years as both solar and wind power manufacturers have returned to profitability. Over the three years ending in December 2021, the TAN solar ETF gained 61%, while the FAN gained roughly 23%. Renewable energy investments, with the sun, shining and the wind at their backs might drive fund prices upward over the next few decades.
Investing in hydroelectricity
In the coming years, hydropower is likely to be the primary renewable energy source driving spending. It is now the most frequently used source of renewable energy production, contributing to approximately 17% of global power production.
With the acquisition of France’s Alstom SA in 2015, General Electric Co. (GE) re-entered the hydropower market. Alstom is one of the world’s top manufacturers of hydropower turbines. GE turbines and generators currently account for around 25% of the world’s installed capacity.
Competitor Siemens AG, not to be outdone, continues to focus on small-scale hydroelectric installations. Both GE and Siemens have the potential to be major participants in the spread of renewable energy.
What Is the Best Way to Invest in Green Energy?
Finding a mutual fund or index fund that invests in a diverse portfolio of renewable energy securities is the simplest method to invest in green energy. There are numerous similar funds, each managed differently or targeting a different renewable energy index.
Investors can also research the equities of green energy firms; however, this is a more difficult procedure.
Which countries are making the most investments in green energy?
According to a United Nations Environment Program report, China was the greatest investor in renewable energy from 2010 to 2019. China invested $758 billion on non-hydroelectric renewable energy, whereas the US spent $356 billion, and Japan spent $202 billion.
What Is the Best Green Energy Source?
There is no single answer to this issue because the output of renewable energy is strongly dependent on regional factors such as weather. Solar and wind power have both witnessed significant increases in electrical output, and in many places, they are now cheaper than fossil fuels. Hydroelectric, geothermal, and nuclear power are more dependable for large-scale production, but each has its own set of environmental concerns.
In conclusion
Bloomberg New Energy Finance’s recent analysis demonstrates how far renewables will go toward meeting the demands of our generation. Given the predicted spending frenzy in the sector, green investors may see their holdings expand in tandem with the need for energy.