Renewable energy: where and how to invest

Investing money in renewable energy is one of many ways to protect our planet from the ravages of climate change.

But we often forget that where we invest our money can make a difference.

Below we will discuss:

• What types of renewable energy are there?
• How do you start investing in renewable energy?
• What will the future growth of this sector be?

The rise of renewable energy

By 2050, about half of the world's energy production is expected to come from renewable sources such as wind and solar power, according to the U.S. Energy Information Administration.

This change requires huge energy investments. And there is already evidence that Britain's biggest energy companies are putting money into their futures.

Shell, for example, has spent around $2bn (£1.4bn) investing in renewable energy since 2016.

Institutional investors such as major pension funds are also pouring large sums of money into the sector. A recent study by alternative investment firm Octopus found that there are plans to spend $743 billion on renewable energy over the next 10 years.

Types of renewable energy

To meet global energy needs, the world will need several types of renewable energy. And you can invest in all of them (more on that later).

Here are some of the most common forms of renewable energy generation. Together they account for almost a third of the UK's energy generation.

1. Solar energy: The energy that comes from the sun can be harvested by a variety of technologies, including solar panels, both in private homes and large-scale solar power plants. Solar energy currently accounts for around 4% of the UK's electricity.
2. Wind energy: Wind turbines, both onshore and offshore, meet around a quarter of the UK's electricity needs. The UK is the world leader in offshore wind power, with more generating capacity than any other country.
3. Water energy: Energy created by flowing Water, also known as hydropower, accounts for 2.2% of the UK's electricity generation demand.

Learn more: How to go green and save money

Is renewable energy a good investment?

The world needs more green energy to replace fossil fuels as an energy source. And strong demand tends to be a good example for energy investments such as wind and solar power.

However, there are other factors that determine whether supporting renewable energy with finance is the right decision for you. These include the health of the global economy, local regulations and policies.

When the global economy is strong, demand for electricity soars and prices rise. This means that the value of the companies that produce electricity will start to rise.

Green companies are also influenced by various corporate regulations and policies around the world. Governments could benefit green businesses by mandating that a certain amount of energy be renewable or by imposing penalties on companies that use fossil fuels.

It could also choose to withdraw green incentives and push prices down.

The financial strength of individual companies is also important for investors. Companies with weak balance sheets may struggle, even in growth areas like green energy.

That's why it's important to research the different ways to invest in renewable energy before making a decision.

Read more: I'm vegan. How can I invest ethically?

Why invest in renewable energy?

Here are the top reasons to invest in renewable energy from a variety of sources:

• it is ethical We provide investment opportunities that align with your values.
• sector IStanding at the forefront of technological development. More efficient solar cells using structures called 'perovskites' are just one example of cutting-edge research leading to breakthroughs with significant benefits in increasing power generation capacity.
• We receive support from governments around the world. This includes pledges by many countries to reduce carbon emissions and calls for greater use of renewable energy.
• Renewable energy could boost the economy By creating jobs in rural areas and reducing fuel imports.

How to invest in renewable energy

There are several ways to invest in renewable energy. These range from buying shares in individual companies to investing in funds that replicate the performance of specialized stock indexes related to clean energy.

Investment possibilities include:

1. Direct investment in renewable energy projects

Participating in a new wind farm or solar energy project creates a very clear link between the money and the benefits it brings.

Ethical finance companies such as Abundance and Triodos are offering investors the opportunity to fund developments such as solar panels for schools and ground-mounted solar power plants.

These tend to be very long-term energy investments. Also, because you have to invest your money in one project instead of spreading it out, you run the risk of not getting your money back if the project fails.

Some of these investments can be held in an ISA so the returns are tax-free.

Before investing in a project, check whether the company you are investing in is regulated by the Financial Conduct Authority (FCA). This helps prevent misselling.

You can use the company's registered office address and name to confirm that the company is authorized on the FCA's Financial Services Register.

2. Investing in exchange-traded funds

Exchange-traded funds (ETFs) mimic prices It represents the movement of a specific basket of stocks, such as the FTSE 100. This gives you exposure to a diverse portfolio of stocks and is highly liquid, making it easy to buy and sell.

There are many index-tracking ETFs in the renewable energy sector, including:

• S&P Global Clean Energy Index. Consists of a basket of clean energy stocks from around the world.
• Nasdaq Clean Edge Green Energy Index. More than 50 member companies, including Tesla, are publicly traded in the United States.

ETFs are a very easy way to gain exposure to these types of companies, but it's important to understand exactly what the fees are and what the ETF is tracking before investing.

Some ETFs own the stocks they track (physically backed ETFs), while others are known as “synthetic” ETFs. Because they rely on financial instruments and a large number of counterparties to try to replicate performance, they may not track the index accurately.

In this case, your own risk tolerance and how you view fund fees will determine what you're comfortable with.

3. buy renewable energy stocks

Investing in renewable energy with individual stocks is another way to gain exposure to this sector. These may be companies that produce energy through wind turbines or solar cells, or they may be companies that manufacture metals and other goods needed to ensure the development of these products. There is also.

It is relatively easy to buy shares of companies listed on the stock market, and it is also easy to sell them. You can also invest within a stocks and shares ISA.

However, these should be viewed as long-term investments and it is also important not to put all your eggs in one basket, as the fortunes and share prices of individual companies can fluctuate.

Instead, it should be part of a diversified portfolio to spread the risk.

A company's stock price can go up or down. Therefore, be sure to read a company's balance sheet and understand the risks before investing.

The future of renewable energy investment

Renewable energy already makes up a large part of the UK's energy supply, but there is still plenty of room for this to grow, increasing the viability of investing in renewable energy.

Following the recent COP26 climate change summit in Glasgow, countries including the UK announced new commitments to green energy targets, including reducing fossil fuels.

The countries committed to the EU's goal of achieving carbon neutrality by 2050 and the US' return to the Paris climate agreement.

Achieving the goal of radically reducing these emissions requires continued investment in renewable energy. Therefore, it can be a sustainable investment strategy for those looking for long-term returns.