investing in renewables

our world is getting warmer. the warmer it gets, the more unsustainable it will be. thus we are having some very serious conversations about survival. and rightfully, the world’s leaders are now looking towards cleaner energy sources to control the effects of climate change.

in 2018, 28% of global electricity was generated from renewable energy sources and the U.S. Energy Information Administration (EIA) estimates that the share of renewables will collectively increase to 49% of global electricity generation by 2050.

a report from Bloomberg New Energy Finance estimates that globally $7.7 trillion will be invested in new generating capacity by 2030, of which 66% will go to renewable technologies including hydro. out of the $5.1 trillion to be spent on renewables, Asia-Pacific will account for $2.5 trillion, the Americas $816bn, Europe $967bn, and the rest of the world including the Middle East and Africa $818bn.

if you look at it from a purely financial point of view, renewable energy will be the new sunrise sector. the companies that operate in this sector will bring large profits. so, how do you be part of this fundamental shift in thinking?

make your choice

if renewables are your pick. you can directly invest in renewable firms in India or in the US via the LRS (liberal remittance scheme) route. think about companies that will provide the tools in this space. firms focused on battery energy storage systems, for example, can serve as a good choice.

another interesting option would be the suppliers of various raw materials necessary for building renewable infrastructure. building energy storage batteries requires minerals like lithium and cobalt. demand for these resources is bound to go up.

from a risk management perspective it would be wise to not keep all your eggs in one basket. the easiest way to diversify would be with an exchange-traded fund (ETF) or even a mutual fund.

in India there are schemes like DSP’s Natural Resources & New Energy Fund, Nippon India’s Power & Infra Fund, and Tata’s Resources & Energy Fund, which aim to invest in companies in the alternate energy sector or the energy technology sector. the five year returns of these schemes range from 15% to 18%.

similarly, one could look at the global market and under the LRS scheme invest in clean energy ETFs. schemes like Invesco WilderHill Clean Energy ETF or iShares Global Clean Energy ETF can provide exposure to a broader array of companies working in the clean energy space.