Investing In Renewables Sector — A Look At The Largest Renewable Energy Companies

Key Takeaways

• Renewable energy is more friendly to the environment compared to fossil fuels.
• Most green energy today is focused on wind and solar, however some companies are exploring hydrogen as a fuel source.
• There are many investment options for investors, from individual stocks to mutual funds and EFTs.

Green energy is a popular investment as more and more people realize the impact of increased carbon on the climate. But with so many renewable energy investments to choose from, this sector can quickly become overwhelming to investors. Here is a rundown of the industry and some investment options to consider.

Understanding Renewable Energy

Renewable energy involves power generation using methods that won’t deplete natural fuel reserves. Many companies in the energy industries are developing new ways to generate electricity that don’t adversely impact the environment through the collection of fuels and increased carbon emissions.

Burning fuels (such as natural gas, wood, coal, or oil) releases pollutants into the air that reduce the quality of life for the earth’s inhabitants. There have been major strides in anti-pollution technology over the past few decades, including fuel injection in cars for efficient fuel burning, scrubbers in smoke stacks reducing carbon emissions, and a reduction in reliance on coal as a fuel for energy generation. Despite this headway, it is challenging and expensive to reach a state of zero carbon emissions, hence the focus on renewable energy sources.

Types of Renewable Energy

Multiple types of renewable energy have been developed and are currently used for power generation at all consumption levels. The types most commonly in use include:

• Solar
• Geothermal
• Hydroelectric
• Wind

Solar Energy

Solar energy generation consists of photovoltaic panels or mirrors that focus the sun’s energy into receivers that turn the energy into heat for power generation. The sun produces more energy daily than people consume, making it the most plentiful renewable energy source. Home solar energy systems use photovoltaic roof panels that transmit the converted electricity into the home via direct power or battery banks.

The downside of solar is that the sun isn’t always shining. At night and on cloudy days, there is little to no energy to collect. There have been significant strides to overcome this issue with batteries that can store excess energy collected during daylight hours for use at night. However, this technology is far from perfect.

Geothermal Energy

Geothermal energy involves drilling deep into the earth to reach geothermal pockets of heat continually refilled by the earth’s molten core. These pockets are converted into wells, and the energy is drawn upwards to heat fluids, which generates power. This is one of the oldest forms of renewable energy, having been developed in the early 20th century.

The main downside to geothermal is the high upfront costs. Additionally, there is a question about its long-term sustainability, as the water pulled from the ground needs replenishment.

Hydroelectric Energy

Hydroelectric energy is energy generated by water. Niagara Falls and the Hoover Dam are two famous sources of hydroelectric power, but any flowing water source can be used to generate power. Water flows over turbine blades and turns a generator that produces raw electricity. This creates a steady power supply to homes, businesses, and other users.

The downside here is it is location specific. You don’t have this option if you are not near moving water. In theory, you could purchase this energy from another company at a more advantageous location, but getting it to you would be a considerable cost.

Wind Energy

Wind energy is controversial due to the sheer size of the windmills, their need for a steady breeze to operate, and their tendency to interrupt the migratory patterns of birds. Even though there are issues with wind energy, this technology has become more efficient at generating electricity, and its total output has the potential to exceed the worldwide daily energy demand.

The argument against wind energy is you need the wind to blow to create energy. This means only certain areas can take advantage of this renewable energy source. There are also concerns about the lifespan of windmills. And while it is possible to recycle windmill blades and parts, this rarely happens.

TryqAbout the Clean Tech Kit | Q.ai – a Forbes company

How to Invest in Renewables

Investing in renewables is as easy as picking an individual stock, mutual fund, or exchange-traded fund (ETF) focusing on green energy. It is important to know that if you opt for a mutual fund or ETF, you might be investing in traditional energy companies as well. Even though the big oil companies rely on fossil fuels, many are beginning to invest in renewable energy. Because of this, you need to understand the underlying companies of any fund you choose to invest in.

Because there are many green energy investment choices, here is a list of some to help start your research.

Alternative Energy Mutual Funds

Guinness Atkinson Alternative Energy Fund (GAAEX)

The Guinness Atkinson Alternative Energy fund targets alternative energy companies with a minimum market cap of $500 million. The fund started in 2006 and has returned 8.17% over the past 10 years. From January to September 2022, the fund is down 21.76%. It invests 80% of its net assets in green energy companies based in the U.S. and globally.

Fidelity Environment and Alternative Energy Fund (FSLEX)

The Fidelity Environment and Alternative Energy fund invests a minimum of 80% of net assets in companies engaged in alternative and renewable energy, water infrastructure, recycling technologies, energy efficiency, and other environmental support services. The fund has returned 10.65% over the past 10 years and is down 22.39% year to date.

Clean Energy ETFs

iShares Global Clean Energy ETF (ICLN)

ICLN tracks the S&P Global Clean Energy Index and is a highly diverse fund. It contains stocks representing every corner of the renewable energy industry, including geothermal, hydroelectric, solar, wind, and more. The ICLN invests in companies around the world. Year to date, the fund is down 8.29%.

Invesco WilderHill Clean Energy ETF (PBW)

This ETF is similar to the ICLN by iShares but only contains securities from companies in the U.S. It holds stocks from 82 companies and tends to be more volatile due to its focus on small-cap stocks. This is reflected in its year-to-date return of negative 35.69%.

ALP Clean Energy ETF (ACES)

ACES holds clean energy securities from companies in the U.S. and Canada. The fund focuses on stocks issued by companies involved in developing renewable energy. Year to date, the ETF is down 11.13%, but since inception, is up 21.96%.

Individual Stocks

NextEra Energy (NEE)

NextEra is a leader in solar and wind energy. The company plans to eliminate carbon emissions from operations by 2045. Over the past 5 years, the stock is up 113%. Year to date it is down 9%.

Plug Power (PLUG)

Plug Power is a hydrogen and fuel cell system company at the forefront of hydrogen energy. This market is still in the very early stages, so this stock will have a lot of volatility. Year to date, shares are down close to 38%, but over the past 5 years, they are up 669%.

Sunrun (RUN)

Sunrun is a solar energy company that caters to the residential market. They design, develop, and install solar panels on residential rooftops. As long as energy prices remain high, Sunrun should be able to continue to add to its business, as consumers are looking to save on their monthly energy costs. Year to date, shares are down roughly 11%. Over the past five years, Sunrun is up 418%.

Clearway Energy (CWEN)

Not only does Clearway Energy generate wind and solar energy, but they also sell their energy to other companies. The company has a solid financial foundation, which was strengthened further with the sale of its thermal business. Year to date, the stock is down 1% and over the past 5 years is up 80%.

Q.ai Clean Tech Investment Kit

The Q.ai Clean Tech Investment Kit uses artificial intelligence to build a diverse portfolio. It is an alternative to investing directly in a mutual fund or ETF as it allows you to invest in individual stocks, ETFs, and other investments through one kit. One added benefit is the risk level of each kit is disclosed, so you have a better idea if it is a suitable investment for you.

Bottom Line

While some investments go in and out of favor with investors, clean energy is here to stay. The climate is a global crisis that needs to be solved, and many renewable energy companies today are leading the way for a brighter future. However, this doesn’t mean every company out there today will be here tomorrow. To lower their risk, investors need to do their research to ensure they are investing in the best companies that are industry leaders.