3 Renewable Energy Trends Investors Must Watch

Justin Kuepper

Renewable energies have experienced dramatic growth over the past few years and that growth is likely to continue. With more than 200 countries signing the Paris Agreement, there will be a reliable increase in demand over time for technologies capable of reducing greenhouse gas emissions and improving the environment. International investors may want to consider investing in companies operating in the space to capitalize on these trends.

In this article, we will look at three renewable energy trends and why international investors may want to pay close attention over the coming years.

Solar becomes ubiquitous

Solar power was originally discovered in 1839 when Alexandre Becquerel observed the photovoltaic effect in a conductive solution exposed to light. The idea of a solar cell was patented in 1894 and created about 50 years after its discovery by Aleksandr Stoletov. Total worldwide install photovoltaic power reached 1,000 megawatts by 2000 and has been growing exponentially ever since – surpassing 300,000 megawatts in 2016.

The solar industry had been dominated by theUnited Statesprior to 2000, butJapan,Germany, and thenChinahave taken the reins since that time.Chinais expected to continue to rapidly expand its solar capacity as the global market is projected to double or triple between 2016 and 2020 to more than 500 gigawatts.

More than half of this growth is expected to be deployed inChinaandIndiawhere solar power could have the biggest impact.

International investors may want to consider increasing exposure to the solar industry within their portfolios given this tremendous growth. The Van Eck Vectors Solar Energy ETF (KWT), for example, provides 26 percent exposure toChina, 22 percent exposure to theUnited States, and additional exposure to other countries likeSpain,France,Germany, andCanada.

The Guggenheim Solar ETF (TAN) is another great example of a global fund in the space.

 

Wind power’s regional draw

Most people know that renewable energies are cheaper than conventional energy sources if environmental costs are considered. But surprisingly, wind power is among the cheapest forms of energy, coming in substantially lower than solar power. A 2012 study conducted in the European Union indicated that the high price of solar energy was due to the carbon-intensive manufacturing processes inChinaand the depletion of metal resources.

Denmarkhas been a pioneer of commercial wind power since the 1970s and aims to generate about half of its total electricity demand from wind by 2020. In fact, the country generates upwards of 140 percent of its total power demand on some windy days, enabling it to sell power to neighboring countries. These impressive results could spur other countries in the region to adopt wind power as a viable alternative to solar in non-sunny locations.

The most popular company focused on wind power is Vestas Wind Systems (VWDRY) – which is conveniently based inDenmark. International investors can also gain exposure to the sector through alternative energy ETFs, such as the iShares Global Energy Energy ETF (ICLN), which holds a sizable 5.3 percent stake in Vestas.

The cost-effective nature of wind power could help these companies generate strong long-term sources of recurring revenue at attractive margins.

Battery power opportunities

Many people think of solar or wind power when considering renewable energy sources, but batteries may prove to be the critical factor influencing the industry’s success. After all, renewable energy may be able to generate a lot of energy at certain times, but consumer demand doesn’t always follow the same pattern. Batteries are a convenient way to store excess electricity for future use and ensure even and smooth functioning utilities.

Lithium ion batteries have become the most popular format for storing energy given its cost-effectiveness and favorable energy dynamics. While battery prices have been dropping, the U.S. Department of Energy reckons that prices will have to store energy for less than $100 per kWh to be competitive with fossil fuels.

The upshot is that energy storage prices are rapidly approaching these levels and that could spur a dramatic increase in demand.

International investors have several options when looking into battery companies, including both battery manufacturers and suppliers of commodities like lithium. For example, the Global X Lithium & Battery Tech ETF (LIT) provides exposure to the full lithium cycle, from mining and refining the metal through battery production. The fund holds companies from around the world, including firms located inChileand theUnited States.

 

The bottom line

Renewable energies have experienced dramatic growth over the past few years and that growth is likely to continue with the passing of the Paris Agreement. Investors may want to take advantage of these trends and consider individual companies or ETFs that offer exposure to the renewable energy space. Doing so could help increase long-term risk-adjusted returns while promoting renewable energy goals.