Investing in Wind and Solar Energy

Last week I blogged about how renewable energy is the cat’s jammies right now. It’s growing rapidly all over the world and may be one of the best investing opportunities of our life time. 🙂 Today we’ll take a closer look at how to invest in them.

Why Invest in Renewable Energy

In 2005 cell phone manufacturers didn’t have a clue how the mass adoption of smart phones would change everyone’s lives. 📱 We literally have the entire internet in the palm of our hands today! YouTube was also created in 2005, by a few young chaps in their twenties. But nobody could have predicted that 8 years later video streaming would make up more than half of all internet traffic by data usage. You guys, 2005 was only 10 short years ago!

My point is the world is advancing quickly, and when it comes to making money, we have to position ourselves accordingly to ride the waves as they come and get in on the ground floor before the opportunities mature. And right now, I believe the next big wave that’s coming is in renewable energy. 🙂 World leaders at the G7 Summit recently said they want to “de-carbonise the global economy” by the end of this century. This means ditching fossil fuels, and moving more towards green alternatives like solar, wind, and hydro electricity. With climate change being a major global priority, now is the time to focus on a greener future. ☀

Imagine investing in Apple in 2005 before the release of the first iPhone or being one of the YouTube founders. That’s the kind of opportunity we have right now with green energy.

Hipsters are all about Eco-friendly trends. We can be like hipsters too and invest in this industry before it becomes cool. 😀 Over the next 10 years I believe we’ll see a revolution in green technology. So let’s act now. When 2025 rolls around, renewable energy will be a lot more mainstream. But early investors like us can look back at 2015 and feel proud knowing that we were pioneers of this technology. Let’s work together to reduce humanity’s carbon footprint, and make some money doing it.💸

By investing in green energy we help raise capital for businesses to expand wind and solar power which will lessen the reliance for the demand of coal, and natural gas, which currently still make up the majority of the U.S. electricity needs. When we invest in renewable energy, we facilitate lower carbon emissions, create jobs for people, and profits for companies. We accelerate the speed of innovation making green technology more efficient and cheaper to produce. And on top of everything we can expect to make a 4% to 10% annual return from our investments.

Below are 5 different ways to invest in green energy with varying degrees of risk and expected returns. Let’s go over them one by one.

Direct Stock Investment

For those with some investment know-how and a longer time horizon, investing directly in companies in the green energy sector could be a good option. However as with all individual stocks, renewable energy share prices can swing wildly in the short term.

• Suncor (SU) is a Canadian energy company, most notably known for its projects in the oil and gas sector. Suncor is a pioneer in wind energy with 7 power developments in operation and other projects in the planning stages. These wind energy facilities have a generating capacity of 295 megawatts (MW), enough to power over 115,000 Canadian homes. 3 massive blades are used in each turbine. Each blade (picture below) is 55 meters (180 feet) long.

• General Electric (GE) owns and operates GE Wind. It is the largest maker of wind turbines in North America.
• Siemens (SIEGY) is a German engineering firm. It has large investments in both wind turbines and solar panels.
• Enbridge (ENB) is an energy and pipeline company. Very popular among Canadian funds. It’s defensive by nature, relative to other stocks. Enbridge has 14 wind farms that are either in operation or under construction, several solar farms generating 150 MW at gross capacity, and smaller developments in geothermal and biofuel projects.
• Brookfield Renewable Energy (BEP.UN) operates as a pure-play renewable power platform. The Company owns and operates approximately 204 hydroelectric generating stations on 72 river systems and 28 wind facilities, diversified across 13 power markets in the United States, Canada, Brazil and Europe. It also has a 6% dividend yield which is an attractive incentive for investors looking to generate income returns.

• SolarCity (SCTY) sells renewable energy. The Company integrates the sales, engineering, installation, monitoring, maintenance and financing of its distributed solar energy systems. It offers long-term energy solutions to residential, commercial and government customers. The Company installs solar energy system at its customer’s premises and charge the customer a monthly fee for the power that its system produces.
• Canadian Solar (CSIQ) is a solar power company, which designs, develops and manufactures solar wafers, solar cells and solar power products. The Company’s solar power products include standard solar modules and specialty solar products. It makes money by making and selling solar panels, as well as operating solar farms and selling the electricity it generates to customers.

A good way to mitigate risk while still investing directly in renewable energy is to buy shares in companies that do more than just renewables. The first 4 stocks mentioned above are diversified in other industries.

Type: Stocks    Min Required: N/A    Investment Difficulty: Easy    Risk: Medium to High   Expected Yearly Return: 5% to 10%

Exchange Traded Funds of Wind and Solar

ETFs are a great way to invest in renewables with a diversified approach. They hold a basket of different companies like a mutual fund.

The Guggenheim Solar ETF, (TAN) seeks investment results that correspond generally to the performance of an equity index called the MAC Global Solar Energy Index. The Index consists of approximately 25 stocks of the solar energy industry.

The PowerShares WilderHill Clean Energy Fund (PBW) is a broad renewable energy ETF that tracks the Wilderhill Clean Energy Index. This ETF acts as a general proxy for U.S. based renewable energy companies.

Both ETFs pay a small dividend. ETFs are a good way to invest in a broad spectrum of companies. However, renewable energy companies can still be highly volatile. TAN fell by more than 70% during the 2008 recession.

Type: ETFs    Min Required: N/A   Investment Difficulty: Easy    Risk: Medium   Expected Yearly Return: 4% to 8%

Crowd Funding

Mosaic is an energy company in the U.S. that connects high quality borrowers who want to install solar panels on their homes, with investors who are willing to finance the deal. It’s similar to a peer to peer lending program, but specifically aimed at funding solar projects. Investors can choose which projects and borrowers they want to support. Loans are typically 10 to 20 years long, and the average interest rate is about 5%. According to study by Solar City, the projected annual default rates for these loans are very low; about 0.3%. The borrower who installs the photovoltaic panels on their own rooftops save money over the long run because they no longer have to rely on traditional electricity from the city’s grid. The investor makes money as well by earning interest from the upfront loan, so it’s a win win. This is a valid option for investors looking for a low maintenance, long term investment with okay returns and regular cash flow.

Type: crowd-funding    Min Required: $25    Investment Difficulty: Easy     Risk: Low    Expected Yearly Return: 4% to 6%

Exempt Market Funds

Solar Income Fund (SIF) based out of Toronto, ON is sort of like a private equity fund where the managers gather money from investors to buy contracts, and solar panels, and pay for the operation of its solar farms. Due to the feed-in tariff program in Ontario, the government sells contracts to renewable energy companies. The contract dictates that the Ontario government must buy electricity from the green company at a fixed rate for the next 20 years. The rate under contract is sometimes 10 times higher than the market value of electricity. This huge premium creates an incentive for more companies to go green.

The fund returns a fixed 8% a year, and any additional profits are split 60/40 between the investor and the management team at exit. My friend Financial Underdog over at Money Ramblings recently wrote a detailed article about the exempt market, and how to invest in it.

Type: Exempt Market     Min Required: $1,000     Investment Difficulty: Moderate     Risk: High    Expected Yearly Return: 8%+

DIY Renewable Energy Projects

If you’re a hands-on type of person you could consider installing solar panels on your roof or a wind turbine in your backyard, subject to your city’s approval of course. In most cases it’s not financially viable to do this yet. A wind turbine setup can cost $100,000. And solar panels can cost $10,000 to $20,000 depending on where you live. Most Canadians use subsidized electricity anyway. That’s why we only pay $0.08/kWh here in B.C. In a future post I’ll break down the costs and benefits of installing private solar panels.

Type: Hands On   Min Required: $10,000     Investment Difficulty: Hard     Risk: Depends on Knowledge    Expected Yearly Return: 2% to 10%

The world of renewable energy is truly fascinating. I didn’t even realize Suncor and Enbridge were large players in this space prior to my recent research. I look forward to put some more money into this sector and ride the wave to the top. 🙂

Disclaimer: I own SU, SIEGY, ENB. I plan to buy BEP.UN and SIF.

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Random Useless Fact

You’re twice as gullible as you think you are.