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Around the globe, clean energy investment has never been higher, creating plenty of opportunities for investors who want to take advantage of trends like recovering supply chains, the IRA (Inflation Reduction Act), and more. But where to begin?
Many large companies such as CEG and FLNC are performing well, but energy stocks can shift (especially with inflation-targeting interest rates being high right now), and sometimes quickly! How do you know where to focus your investments? Talking to your financial advisor is always a good start, but I also have several tips on where to begin with healthy renewable energy investment for the coming years.
1. Solar and EVs are hot markets
In the early 2020s, two rapidly expanding areas are solar power and EV (electric vehicle) investment, making these sectors great places to start. Both are seeing high growth due to pent-up demand during the pandemic and more widespread adoption in low-saturation areas.
As with much clean energy spending, investments primarily focus on a few high-growth regions, including China, the EU, the United States and Japan. But opportunities also exist in smaller markets where numbers are starting to rise, notably India, Africa and Brazil. There’s plenty of growth potential in all these regions, especially as EVs grow increasingly familiar with infrastructure build-out to support them. This remains primarily focused on urban growth with excursions into commercial markets for short-length delivery and freight.
2. Invest in the most vital supply points
As you research potential investments, remember that some parts of the renewable supply chain still need to be stronger or are particularly important to the long-term success of products. That includes makers of battery storage components, which are necessary to utilize solar and EV-related energy investments fully. It includes makers of the latest high-quality photovoltaics, ocean-rated turbines and micro-inverters. For some examples, look into the operations of First Solar (FSLR), Enphase (ENPH), Vestas (VWS) and SunPower (SPWR).
3. EFTs remain a safe, powerful bet
For many years, one of the most reliable ways to invest in clean energy was EFTs (exchange-traded funds) specializing in renewable markets. Because renewable energy is seeing lots of global growth across many sectors, fueled partly by concerns about traditional supplies from Russia and Iran, EFTs are strong if low-risk options to get started on energy investments.
Another thing I like about today’s EFTs is that they allow for broad targeting of specific sectors. For example, FAN focuses on wind deployments, and TAN is on solar. Each fund has a portfolio with mixes weighted toward various technologies.
4. Long-term investment in the global south
For ground-floor investments with lots of long-term growth opportunities in the next decade, I suggest looking toward the global south. Currently, the global south is seeing a significant shortage of renewable investment compared to many northern regions. Brazil and Australia have growing opportunities, but Africa and many parts of South America still need development. There are lots of options here for investors who don’t mind a slow burn and want to take advantage of projects in the making.
5. Wind and hydrogen are poised for steady growth
Wind has come a long way in recent years, and many farms, especially offshore options in ideal global locations, are planned for the 2020s. Like solar, wind has many entry points for investment, from turbine creation and other manufacturing to battery storage capabilities. The EU, USA, and China all have many farms in various stages of development, most focused on using the latest engineering and software to maximize efficiency.
Hydrogen is also in a good spot. Much of the discussion focuses on green hydrogen, which uses low-carbon techniques. Green hydrogen has the potential to meet many business-related carbon footprint goals, so its use could spread across the United States and the EU, as well as other nations, in the coming decade. But anywhere with the potential for hydrogen infrastructure shows promise.
6. YieldCos continue to show potential
YieldCos are ambitious investment vehicles that purchase power generation assets directly with a focus on profit growth that translates to high dividends. If dividends are your goal, look into YieldCos as a higher-risk option with lots of opportunities for returns…especially once interest rates and inflation finish cooling down.
This is just the start of the potential investments in renewable energy. It’s an industry that covers multiple fields, including rare earth, shipping companies and many types of manufacturing. Clean energy has never been more popular, but watching the (metaphorical) headwinds and political movements is always a good idea as you balance your portfolio.