How to invest in renewables

As of 2020, 38 states have a renewable energy standard that requires a certain percentage of energy to be sourced from a renewable resource like wind or solar. With clean energy moving out of the fringes and into the mainstream, the renewable energy industry is seeing rapid growth.
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 renewable energy ETFs

A popular investment strategy is to purchase exchange-traded funds (ETFs). ETFs give access to a variety of assets without having to put all 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.

• ETFs covering all renewables
  • iShares Global Clean Energy ETF (ICLN), which tracks an index of 30 of the world’s largest companies involved in clean energy
  • PowerShares WilderHill Clean Energy Fund (PBW), which tracks an index of about 40 clean energy, zero-CO2 and conservation stocks
  • Invesco Cleantech™ ETF (PZD), which tracks an index of 50 alternative energy, energy efficiency, air and water purification, eco-friendly ag stocks and more
  • First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), which tracks an index of about 40 biofuels, solar energy and advanced batteries stocks
  • ALPS Clean Energy ETF (ACES), which tracks an index of about 30 US and Canadian stocks focused on renewables and clean technology
  • Global X YieldCo & Renewable Energy Income ETF (YLCO), which tracks an index of income-producing renewable energy stocks
• Solar energy ETF
  • Invesco Solar ETF (TAN), which tracks an index of about 35 global solar stocks
• Wind energy ETF
  • First Trust ISE Global Wind Energy Index Fund (FAN), which tracks an index of about 40 global wind energy stocks
• Smart grid ETF
  • First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID), which tracks an index of more than 50 smart grid and electric infrastructure stocks
• Nuclear energy ETF
  • VanEck Vectors Uranium+Nuclear Energy ETF (NLR), which tracks an index of uranium producers and nuclear energy stocks

2. Purchase stock in renewable energy companies

A common way to invest in clean energy is through the purchase of shares of individual companies. 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 that do more than just renewables, such as:

• General Electric (GE), which has large exposure to wind power though its branch GE wind
• Siemens (SI), which has large investments in solar panels and wind turbines

Stocks in companies focused entirely on renewables have higher risk, with high potential returns. Various renewable energy companies you might want to consider include the following, though some of these are over-the-counter stocks — not listed on a major stock exchange — and may not be available in every brokerage account.

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3. 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 for 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.

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 to host your renewable energy farm. You will also need to obtain interconnection authorization 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, as fluctuating costs of developments and power make these projects high-risk investments.

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, so renewables can be an ethical investment.
• As the technology behind renewable energy production advances, renewable resources are becoming more efficient, reliable and cost efficient.

Risks to consider

• Renewable energy is still a specialty 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 the potential to negatively impact investors.

Bottom line

Renewables and other green investments are one way to invest your money in a cause you care about, but no commodity or stock is completely risk-free. To limit your risk, diversify your portfolio and consult a financial advisor. For more information about your investing options, read our guide to investing.

Frequently asked questions

Which renewables are 100% ethical?
Renewable sources such as wind, solar, geothermal, biomass and hydropower still have environmental impacts. Do your research when investing for ethical reasons.
What are green investments?
Green investments are stocks and funds in businesses that are involved in operations aimed at improving the environment. But you can also start smaller by simply rethinking how and where you spend your money — like opting for one of these eco-friendly companies.