It's Time to Green Your Portfolio

If you're thinking about investing in the renewable energy sector, consider this: Tens of billions of dollars have already flowed into the sector over the past five decades via government subsidies, and many billions more are slated for the coming years.

Why is this important to you, a potential investor in renewable energy? These incentives spur investment and innovation through a combination of tax breaks and government spending. Private capital usually follows public investment. And where the capital flows, millionaires are made.

A report from Management Information Services, a Washington, D.C.-based economic research firm, estimated that from 1950 through 2003, U.S. federal government subsidies for renewable energy were approximately $111 billion. Since 2003, billions more dollars in subsidies and tax breaks for renewable energy have been included in the Energy Policy Act of 2005 and the Emergency Economic Stabilization Act of 2008. Programs included in these bills have funneled money to the states to subsidize renewable energy investments, something Duke Energy (NYSE: DUK  ) took advantage of with its recent solar project in my home state of North Carolina.

A shot in the arm
But the recent stimulus bill, also known as the American Recovery and Reinvestment Act of 2009, had the biggest dose of incentives for renewables yet. How much, exactly?

Close to $79 billion.

With the stimulus bill alone, the U.S. government is allocating more than two-thirds the amount of money it had allocated in the past half-century for renewable energy. On the campaign trail, President Obama advocated investing $150 billion in renewables. With one bill, he's halfway there.

The incentives abroad
And such helpful government support for the renewables industry exists outside the United States, with countries around the world eagerly giving financial support to the sector.

Germany is the leading photovoltaic solar market, partly because it gives assistance to companies such as First Solar (Nasdaq: FSLR  ) to build manufacturing facilities there. China recently boosted its solar incentives, which are expected to help Chinese PV manufacturers like Yingli Green Energy (NYSE: YGE  ) and Trina Solar (NYSE: TSL  ) . India already gets 3% of its energy from renewables, and is setting ambitious targets for more production.

Are governments around the world laying the foundation for a renewable energy bubble?

Stop! Bubble time
Governments can help jump-start entire industries, using public incentives that lure private capital to support innovation in a particular sector. A prominent example is the information technology sector in the 1990s. The development of the Internet was spurred in large part by government spending on research and development. I believe we are witnessing the same phenomena regarding renewable energy.

But let's take the train to Obvioustown: Not every company was a winner in the dot-com era. For every Amazon.com (Nasdaq: AMZN  ) , there were several Pets.coms.There will be many companies that will never make it to Profitville. Already, we see consolidation in the wind sector, with big names like Danish-based Vestas Wind Systems, General Electric (NYSE: GE  ) , and Siemens (NYSE: SI  ) gobbling up market share. This can act against smaller companies trying to muscle their way into the sector.

Break it down
But since we are only at the beginning of this next great bubble, there are still plenty of small and mid-cap opportunities. Renewable energy will be a growing industry, and I believe now is the perfect time for investors to start diving in and building positions in companies. So does the team at Motley Fool Hidden Gems, which has picked out some alternative plays to the big boys in the renewables sector. You can see their current stock recommendations here with a free 30-day trial.

Fool contributor Matt Hoffman owns no shares of any of the companies mentioned. Amazon is a Motley Fool Stock Advisor pick. First Solar is a Rule Breakers selection. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 02, 2009, at 2:43 PM, slidexperto wrote:

    Watch out for Citigroup (stock symbol = C) rising to $6.00 next starting today until next week and Dynegy (symbol = DYN)zooming to $2.50 until next week, it is a defensive stock that distributes/supply electricity at such a low price just like El Paso (EP). Citigroup shares are mostly Democrat-owned as bailed out by the Obama administration, see how the other bailed-out banks are zooming up. The Saudi Prince Talal who owns 15% Citigroup stocks is buying by the millions, and he invested a lot at Citigroup when it was $12 - $14. I just bought 5,000 shares each stock for future selling at above mentioned prices. Good luck, you know what to do...! I was right last week when I predicted about Eastman Kodak zooming to from $4.30 to $5.50...!

  • Report this Comment On September 02, 2009, at 9:08 PM, xetn wrote:

    What you overlook is the government subsidies you speak about is actually money stolen from the taxpayers and given to favored recipients of politicians. In other words, Uncle Sam has taken from Peter and given to Paul. Paul is very happy, but what about Peter?

    If these "investments" are such a great deal, why do you suppose they require the government intervention?

  • Report this Comment On September 02, 2009, at 9:16 PM, sfmaestro wrote:

    How right you are to recommend Yingli (YGE) now that it has dropped about 22% since it was first recommended by Motley fool. But that doesn't help those of us who have already lost a bundle on this stock. Maybe this recommendation will encourage more fools, (oops, I mean Fools) to buy and thus help us, fools, reclaim at least a little of our current loss?

  • Report this Comment On September 03, 2009, at 9:50 AM, theincidentalist wrote:

    xetn,

    I don't know if that's a fair assessment...Couldn't all tax receipts that are spent by the government qualify as a sort of ''robbery'' using this logic? I would encourage you to look more at the development of the internet...much of the innovation and technological breakthroughs were at government agencies such as NASA and the National Science Foundation. I would argue that this and other government directed initiatives (the interstate highway system for example) were beneficial and wouldn't have been as successful without the role of the federal government.

    sfmaestro,

    Notice I do not recommend YGE in this article, I merely point out that China's recent solar subsidies will more than likely help them since they are involved in this industry.

    Thanks for the posts!

    -Matt Hoffman

  • Report this Comment On September 03, 2009, at 12:32 PM, CFIInvestor wrote:

    Govenment has always played a big role in our economy through many routes.

    Congress funded 90% of the initial automation of State programs like Food Stamps, WIC, etc. That program, along with other government programs, were instrumental in financing the "information age" development. The installation of credit card terminals in grocery stores was financially supported under one of those government programs.

    Our nation accounts for half the entire world military expenditures. A major part of that defense bill can be attributed to the critical economic need to maintain a constant flow of oil and trading partners.

    I expect the fossil fuel issues, climate, defense systems, etc., will push the U.S. towards renewable energy. Tanks, fighter jets, and soldiers, won't go very far without fossil fuel in today's military. Try defending this nation without air superiority. Generals would love to operate without the extreme vulnerability and logistical burdens of our current fuel and energy systems. Like it, or not, this is serious government business. Reducing our dependence on a finite resource will reduce our financial commitment to ensure those resources are available. That is a good investment.

    To ensure long term survival, we must and we will overcome the finite energy system. It will be better for businesses and individuals. We transitioned from rows of payroll clerks to a small computer without ruining the world.

    Government will play a key financial role in the energy transition and there will be a massive payback.

  • Report this Comment On September 08, 2009, at 10:45 AM, TMFAEdwards wrote:

    According to an August 31 WSJ article, Morgan Stanley and Citigroup invested over $100 million each in wind farms in August alone...

    http://online.wsj.com/article/SB125167463443070949.html

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