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.