Is now a good time to invest in clean energy?

Rishi Sunak has pledged to make the UK a green energy superpower. The Prime Minister set out his ambitious plans in advance of his attendance at Egypt’s COP27 last month. He redoubled his commitment to accelerating Britain’s energy transition, telling the climate delegation that “We need to move further and faster to transition to renewable energy, and I will ensure the UK is at the forefront of this global movement as a clean energy superpower”. The UK government reports that in the second quarter of 2022, 38.6% of the national energy supply was supplied by renewable means. The UK and the EU are committed to reaching net-zero carbon emissions by 2050. Prevailing geopolitical headwinds may well see that target beat as the West scrambles for alternative energy sources. The prospect of a swathe of new nuclear power plants, wind farms, and the rollout of electric cars means we ought to be thinking about investing in renewable energy.

What the future of clean energy might look like

An MIT Energy Initiative paper, Utility of the Future, confidently predicts that transformations in the supply and consumption of electricity, which are already underway, will necessitate an acceleration in the transition toward green energy. The changes taking place across the United States and Europe are described as unprecedented, with India Brazil and Mexico lagging on the same trendline. Both the public and private sectors are working to diversify energy supplies. Shell has pledged that of its £25 billion investment in the UK over this decade, most will be spent on “low and zero-carbon projects”. EDF boasts, perhaps not entirely credulously, that they are leading the charge for electric vehicles – and whether companies or COP are overselling their plans – the arrow of time points away from fossil fuels.

That is not to say there won’t be bumps on the road. Sunak’s November ambitions have come a cropper by his December actions. The Co-Op has convened several major British supermarket chains to pen an open letter to his government. Cornwall Insight was commissioned by Co-Op to examine the UK’s energy strategy and found that by 2030 just 60% of national energy is set to be generated by renewables. However, critics will be relieved, if that’s possible, by the PM signalling he is ready to approve future onshore wind farms. Amid a row with his own MPs, the Prime Minister is set to end the moratorium, paving the way for more onshore electrical generation. A commission is expected to deal with the issue, as the Guardian reports:

“The government will now set up a consultation on scrapping the moratorium on new windfarms later this month, to run until March 2023, with the National Planning Policy Framework updated to reflect the outcome by the end of April 2023.”

In the USA, renewable energy is set to outstrip coal by the end of this year. According to The Scientific American renewables will account for 20% of America’s energy supply this year. This is a credit to the Biden administration’s aims of meeting its emission reduction targets, a key stipulation of its newly passed Inflation Reduction Act. To that end, the Act earmarks $369 billion to be spent on clean energy projects, which is hoped to double renewable capacity in the long term.

A mass growth in clean energy usage expected

The EIA projects that global energy use is expected to grow by half by 2050. With more and more of that energy coming from renewable sources, Investopedia sets out options for those seeking to capitalise. As an alternative to researching extensively into specific companies, they suggest clean energy funds, Solar and wind ETFs and Hydroelectricity investments. A clean energy fund enables investors to spread their capital across a varied portfolio, though the site does note that these funds are not always as green as they purport to be. Solar and wind EFTs focus exclusively on solar and wind power generation – the greener option. Investopedia cites the TAN solar ETF, which has grown by 61% in the three years ending December 2021, as one example of a bountiful EFT. Hydropower is expected to account for a larger share of energy production in the long term, with Siemens AG and General Electric Co. emerging as big players in the market.

With a focus on specific stocks, Forbes has set out their top five green recommendations. They chose Tesla Inc. (TSLA), First Solar (FSLR), SolarEdge Technologies (SEDG), and NextEra Energy (NEE) as their top picks. Many of these firms are set to benefit from the Inflation Reduction Act, which appropriates $11.7 billion for the Loan Programs Office (LPO). The Act also creates a novel loan programme, the Energy Infrastructure Reinvestment (EIR) programme to “help retool, repower, repurpose, or replace energy infrastructure that has ceased operations or to improve the efficiency of infrastructure that is currently operating.” In short, the IRA contains a swathe of measures, of which these are just some, the implementation of which bodes well for the continued prosperity of US-based renewable companies.

Yahoo Finance earmarks 14 green stocks for the prospective investor, the full list being found here. Like Forbes’ recommendations, many companies which feature on the list are American, including California-based SunPower Corporation (NASDAQ: SPWR) and Arizona firm First Solar Inc. (NASDAQ: FSLR). Analyst’s confidence in US green energy is buoyed by the IRA, and with good reason. But we should also take heed of green energy firms in developing countries since it is those countries that will make up much of the increase in energy usage over the next thirty years.

Clean energy outlook in China

China is set to become the world’s largest economy this century. The burgeoning power has invested considerable resources into its renewable energy sector, and having already outstripped the US, the green generation gap between China and America is expected to widen further in China’s favour by the end of this decade. Analysts are particularly optimistic about renewable energy prospects in China, with John Lin, portfolio manager at AllianceBernstein telling Bloomberg that:

“The green sector in China, even though some of them are going to be expensive in terms of valuation, many of those companies are going to see real earnings growth. We’re quite positive on grid equipment makers and wind equipment makers, for instance,”

Summary

There is good reason to be cheerful about renewables in the short and long term. In the near term, prices of energy across the board are soaring as OPEC’s rigidity and Russian sanctions smother supply. Thinking ahead, the direction will invariably have to move away from fossil fuels, and though talk of peak oil is always premature – it won’t be eventually. But it’s not all necessity, consumer conscientiousness sees us attempting to reduce our carbon footprint, and be green where we can.

Considering the tidal wave of growth to come from the developing world, it’s easy to see why green energy is being billed as a good bet.

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Mario Laghos​

Mario Laghos is a journalist. His work has appeared in the European Conservative, Whynow, the Critic, and the Daily Express.

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