An alternative energy revolution is taking place across the globe.
There are many reasons to be excited about the alternative energy revolution. Advances in alternative energy are giving rise to new industries, opportunities for portfolio diversification, and helping create a greener planet for future generations.
Today’s green-minded investors are facing some big questions:
- What is the future of energy?
- Where should I focus my efforts?
- What’s worth investing in now, and what do I need to prepare for?
How did oil come to run our world?
Coal was first used to generate electricity for homes and factories in the 1880s. By 1961, coal had become the major fossil fuel used to generate electricity across the U.S.
In later decades, we began relying on oil to improve our standard of living. Oil is an inexpensive energy source for heating our spaces, lighting our surroundings, and bringing mobility to the masses. Its products underpin modern society.
As such, most economists agree that oil is the most valuable commodity across the globe.
However, when we look decades out into the future, sustainability is the big elephant in the room.
Challenges faced by oil & gas
Burning fossil fuels releases carbon dioxide into our atmosphere and warms the planet. In turn, we see negative impacts on our water supplies, agricultural yields, and the health of future generations.
Alternative energy helps countries scale back on greenhouse gas emissions—those that contribute to climate change and cause environmental damage.
The future of energy
What we’re seeing today is a global shift to alternative energy.
A renewables revolution is underway, with an 82 percent drop in solar costs since 2010.
Elon Musk is bringing energy storage to the forefront of national conversation.
BloombergNEF predicts that wind and solar will grow to meet 56 percent of world electricity demand in 2050, with batteries, flexible demand and peakers in support. Leading countries may go as high as 70 to 80 percent before hitting economic limits. Wind will retake the lead from solar.
Though it has been challenging to reduce our dependence on oil, world leaders understand the importance of prioritizing alternative energy. Measures like the Paris Agreement, with support from nearly 200 nations, seek to slash greenhouse gas emissions and accelerate the transition to renewable energy by 2030.
Six of the biggest oil companies — BP, Shell, Chevron, Total, Eni and Exxon — have invested in alternative energy projects. U.S. companies are beginning to innovate their way towards alternative energy at a higher pace, aided by political tailwinds from the Biden administration.
Moreover, alternative energy sources are quickly gaining the cost advantage. Forbes reports that today’s costs of both solar and wind are below that of fossil fuels, and are likely to fall further over the next decade.
Powerful global trends continue to shift toward alternative energy. Renewables are the future—for industry, for the environment, and for society as a whole.
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What is alternative energy?
Our power grid utilizes several types of energy sources, some more sustainable than others.
Alternative energy (also called clean energy, renewable energy, or green energy) comes from natural sources or processes that are constantly replenished.
There are several different types of alternative energy available. Some common examples include wind, solar, hydroelectric, and biofuels. Lesser-known forms include solar thermal energy, space solar energy, and geothermal energy.
In contrast, we have a finite amount of fossil fuels, like coal, crude oil, and natural gas. Our fossil fuel stores are being depleted much faster than new ones are generated.
Alternative Energy Sources
- Hydrogen and fuel cells
Alternative Energy Sectors
- Solar (PV, thin film, concentrated, etc., panel manufacturers and solar developers)
- Wind (turbine manufacturers and wind developers)
- Grid services
- Biomass and Bio-gas (waste-water treatment, landfill gas)
- Alternative fuels and vehicles (liquefied natural gas, compressed natural gas, ethanol, advanced biofuels, electric vehicles etc.)
- Energy efficiency
- Unconventional oil & gas and related products (e.g. natural gas liquids, liquefied natural gas, etc.)
Alternative energy and ESG investing
Is it possible to invest ethically and still make returns?
In short: Yes. ESG investing offers a way to align your investments with your values, especially if you have a longer time horizon.
What is ESG investing?
- ESG stands for environmental, social, and corporate governance.
- ESG investing allows investors to align their investments with their values.
- ESG investors focus on companies that perform well along these three categories.
Interest in alternative energy has surged in parallel to the explosion of ESG investing.
Morningstar reported massive growth in ESG investing; in 2019 investors placed nearly $21 billion in ESG funds, which nearly doubled to $51.1 billion in 2020. ESG funds accounted for about a quarter of the money that flowed into all U.S. stock and bond mutual funds last year.
For instance, when you invest in an ESG fund with alternative energy projects, you are supporting a progressive energy transition. Some funds focus on climate change and green energy, while others group investments that combat inequality.
The importance of alternative energy
The most obvious answer is that alternative energy is sustainable. Alternative fuels play an important role in reducing greenhouse gas emissions and other potentially damaging byproducts.
Within the U.S. economy, alternative energy offers several major upsides:
- Energy security. Alternative energy provides reliable power supplies and fuel diversification, enhancing energy security and reducing our reliance on imported fuels.
- Economic development. The expansion of alternative energy infrastructure gives rise to new economies, such as hydrogen production and storage.
- Job creation. Compared with fossil fuel industries (which are typically mechanized and capital-intensive), the renewable energy industry is more labor-intensive. Solar panels are installed by humans; wind farms are maintained by technicians.
- Price stability. Renewable energy sources don’t entail fuel costs or require transportation, and therefore offer greater price stability.
Finally, companies that rely heavily on fossil fuels must adapt to changing regulations and consumer preferences in order to compete in a marketplace that increasingly favors alternative energy.
Alternative energy industry outlook
The U.S. Energy Information Administration (EIA) reported that U.S. electricity generation from alternative energy exceeded coal for the first time in April 2019.
Following a decline in 2020, EIA forecasts decreased total U.S. natural gas consumption in 2021 and 2022.
The International Energy Agency (IEA) reports:
Renewables are set to account for 95 percent of the net increase in global power capacity, and overtake coal as the largest source of electricity generation worldwide, by 2025. Hydropower will continue to supply almost half of global renewable electricity.
Plummeting prices will only accelerate the growth of alternative energy industries:
Renewables’ continued cost declines are changing the investor landscape and the role of policies. The share of renewables’ growth coming from purely market-based settings—outside of policy initiatives like auctions and feed-in tariffs—triples from less than 5 percent today to more than 15 percent through 2025. This includes corporate power purchase agreements, plants with higher exposure to wholesale power prices or other contracts.
And finally, oil and gas companies are pivoting to stay afloat:
Major oil and gas companies’ investments in new renewable electricity capacity are expected to increase tenfold from 2020 to 2025.
By all measures, the alternative energy revolution is in full force. The clean energy industry already generates hundreds of billions in economic activity, and shows no signs of slowing down. There is tremendous investment opportunity in sustainable energy.
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