Read on to find out more about renewable energy as an investment opportunity.
How to invest in renewable energy
Aside from rooftop solar panels, there are many other options when it comes to investing in the renewable energy sector. Here are the main ones:
1. Purchase shares in renewable energy companies
Another way to invest in clean energy is through the purchase of individual shares. The nature of these shares is that their prices can be incredibly volatile, especially in newer, niche industries such as renewables.
You could reduce some of this risk by investing in companies who do more than just renewables, such as General Electric (GE), who have large exposure to wind power though their branch GE wind, and Siemens (SI), who have large investments in solar panels and wind turbines.
Stocks in companies focused entirely on renewables have a higher risk, with high potential returns. Various renewable energy companies you might want to consider include European wind turbine manufacturers Vestas Wind Systems, First Solar, Greencoat Renewables, and Gamesa Corporacion Tecnologica.
- You can tailor your own portfolio.
- A simple and accessible way of investing.
- Shares can be volatile, especially in niche companies.
- Putting all your eggs in one basket makes the risk of losing your investment higher.
Compare these providers for buying shares, ETFs and more
2. Directly invest in renewable energy projects
The most direct way to invest in renewable energy, without installing solar panels on your roof, is to invest directly in renewable energy projects. This method is low-risk, especially in terms of solar PV projects, as once the facility is up and running not much can go wrong.
Community-owned solar farms are increasing in popularity. These projects make it possible for communities to invest in solar together by inviting local people to purchase a share, the funds of which are then used to cover the costs of setting up a solar farm. Once set up, members of the group are able to take advantage of the energy produced and benefit from any profits made.
- Unlike with rooftop solar, if you move home you retain your share.
- Risk is low
- Community solar projects benefit the local economy, providing jobs through planning, construction, operation and maintenance.
- Defining factors, such as the weather, can impact a solar farm’s efficiency heavily.
- Solar installations can take useful land out of commission or cause harm to the environment.
3. Purchase renewable energy ETFs
A popular investment strategy is to purchase Exchange Traded Funds (ETFs). While the risk levels are slightly higher, ETFs have higher potential returns. You can check out our ETF guide here.
ETFs give access to a whole load of assets, without having to put all of your money into one or two firms. ETFs work by replicating the performance of major markets or collections of stocks at a lower cost than holding an active fund. If you need to brush up on ETFs, check out our guide.
One of the most well known ETFs in the industry is the iShares Global Clean Energy ETF. While it is still fairly small, the iShares Global Clean Energy ETF offers exposure to 30 of the world’s largest companies involved in clean energy. Another option would be the PowerShares WilderHill Clean Energy Fund (PBW), which tracks the WilderHill Clean Energy index.
- ETFs provide instant diversification across the renewables industry as a whole.
- Investments come at a low price, with relatively low risk.
- You don’t have to gamble on the success of an individual organisation.
- The split of assets is out of your control.
- You may be limited to larger companies, reducing your exposure to mid/small cap companies.
4. Invest in your own renewable energy project
Experienced investors willing to take the risk may consider investing in their own renewable energy projects. This requires large initial investments for equipment and the land space to host your renewable energy farm. You will also need to obtain interconnection authorisation and a power purchase agreement.
Once you have achieved all this, the energy your farm generates can often be sold for a substantial profit. However, return on investment can vary wildly, fluctuating costs of developments and power make these projects high-risk investments.
- Returns can be substantial.
- You have a great deal of control.
- If you own a commercial building and have the space, a solar farm can reduce energy bills, generate income and improve your organisation’s green credentials.
- A large initial investment is required, meaning the risk is higher.
- Experience and expertise are necessary.
- A project takes a great deal of dedication, time and effort.
Reasons to invest
- As worldwide energy consumption rises, and resources such as fossil fuels decline, the demand for sustainable, renewable energy sources is growing rapidly.
- The world is becoming more environmentally conscious, renewables can be an ethical investment.
- As the technology behind renewable energy production advances, renewable resources are becoming more efficient, reliable and lower in cost.
Risks to consider
- Renewable energy is still a specialist area, meaning the risks are higher.
- When newer or smaller companies run into trouble their value can plummet dramatically. This makes renewables a volatile investment.
- While many governments are encouraging renewable energy, an unpredictable change in public policy has potential to negatively impact investors.
Frequently asked questions
More guides on Finder
What are annuities?
We’ve compiled all of the information you need to know about annuities – what they are, the different types available and whether they’re taxed.
Invest in Hang Seng
Find out what makes up the Hang Seng index. We’ve compiled the different ways that you can invest in Hang Seng, such as through ETFs.
Invest in FTSE 250
Find out how you can invest in the FTSE 250 with exchange traded funds (ETFs). See which 250 companies on the London Stock Exchange are in the FTSE 250.
Best ways to invest £200 per month
Wondering what to invest £200 in? Read our guide to learn what you need to consider first and find the best option for you.
Best way to invest £1,000: 6 ways to invest it
So you’ve got £1,000 you want to invest? We’ve pulled together some things that you can do with that £1,000.
Best exemplified by the Oracle of Omaha himself, Warren Buffett, value investing is an investing strategy that, you guessed it, tries to find value in the stock market.
Invest in S&P 500 ETFs
Find out what drives the S&P 500 and how you can invest in S&P 500 ETFs.
Best ETFs 2020
What ETFs are you after? Read our guide and find out what are the best ETFs for a variety of investing styles.
ETFs vs mutual funds
ETFs and mutual funds are both ways to invest in a collection of investments, but they have some key differences that change the way you trade them.
ETFs vs index funds
ETFs and index funds might appear to be exactly the same, but they have some key differences. Find out what they are and how they’re traded.
Ask an Expert