Clean Energy: Investing Essentials

What you need to know before investing in clean energy.

Aug 4, 2014 at 12:00AM

Clean energy has been a hot topic over the past decade as reliance on foreign oil and climate change have become hot button political issues. But today, the clean energy industry is driven more by economics than politics, and investors who haven't looked at the industry recently may be surprised at how far it's come in a short time.

Subsidies for everything from solar to wind energy are falling around the world, and despite that, companies are growing installations and increasing profits. But not every company with a clean energy portfolio will emerge as a winner, so knowing the landscape is vital for investors trying to profit from clean energy trends.

First Solar Cimarron Project Image

A solar power plant built by First Solar in New Mexico. Plants like this are now over half of the new generation built each year. Source: First Solar.

What is clean energy?

Energy that is "clean" is simply energy produced from non-hydrocarbon sources that do not emit byproducts. Wind and solar energy are often thought of as the main sources of clean energy, but in reality, hydro provides far more clean energy to the world today than either of those. Filling in smaller niches are energy sources like geothermal, wave power, tidal power, among other sources.

The key difference between clean energy and renewable energy is that clean energy production doesn't give off carbon dioxide or other gases as a byproduct, whereas biofuels that may be renewable do emit byproducts.  

How big is clean energy?

According to Bloomberg, the clean energy industry currently has revenue of $80 billion, but that's just scratching the surface of the industry's potential.  

The U.S. alone spends more than $1 trillion per year on energy, including gasoline, natural gas, and electricity. Globally, the figure grows to more than $3 trillion annually.

Clean energy isn't a big competitor to an energy source like gasoline, but clean energy is already a player in electricity generation, which is a $372 billion market in the U.S.


Source: U.S. Energy Information Administration.

When it comes to building new electricity generating plants, clean energy is starting to take the place of fossil fuels. Clean energy, particularly solar, now accounts for more than half of the new generation added to the grid each year in the U.S., and non-hyrdo renewable fuel electricity generation has grown 258% from 2001 to 2013.

Despite this incredible growth, clean energy as a percentage of the electricity produced in the U.S. is still a small player. All clean energy sources only accounted for 13% of the electricity supplied to the U.S.


Source: U.S. Energy Information Administration.

Clean energy is already a big industry, but it has incredible growth potential as costs come down and it becomes more competitive with fossil fuel energy sources.

Wind Farm Image

Wind energy has become a major energy source in the Midwest where wind resources are strong.

How does clean energy work?

Most clean energy is in the form of electricity that goes straight into the grid and is delivered to consumers along with energy from fossil fuels. Similar to a fossil fuel plant, a clean energy power plant is built, and then power is sent to the grid through transition lines to demand sources.

Where solar energy differs from fossil fuels as well as other clean energy sources is the ability to create distributed energy from residential or commercial building. What's novel is that energy sources can now be built right into the heart of the demand load and even give homeowners and businesses the opportunity to own generating assets. It's this model that's upsetting the status quo in energy and will cause a shift in the way power producers, utilities, and customers look at energy.

What are the drivers of clean energy?

Whether you're talking about clean energy for electricity generation or electric vehicles, there are two drivers of the industry: cost and innovation.

Like it or not, clean energy won't be a sustainable long-term business or profitable investment if the economics don't work. The good news is that costs have fallen below grid prices in some locations for clean electricity from sources like wind and solar. As economics improve, demand for the industry will grow exponentially, creating an incredible opportunity for investors.

Companies who can innovate to create lower-cost energy, attractive financing options for consumers, and aesthetically pleasing products will be able to create long-term value for consumers, power plant owners, and investors. Whether you're looking at wind, solar, geothermal, or any other source, efficiency and cost competitiveness are key. 

Clean energy will be a growth industry for decades to come, and investors who get in before the market figures out this massive potential have a huge opportunity for profits. 

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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