At this point it's no secret that the global energy demand continues to rise. Driven by emerging economies and non-OECD nations, total worldwide energy usage is expected to grow by nearly 40% over the next 20 years. The sheer amount of required energy is certainly staggering. This huge increase in predicted demand has made funds such as Vanguard Energy ETF (NYSE:VDE) popular choices with investors. While fossil fuels will undoubtedly be part of our energy mix for a long time, a recent report by the International Energy Agency (IEA) throws some cold water on the fossil fuel establishment and highlights the growth of alternatives. For investors, the new prediction helps underscore the need for some exposure to the renewables sector.

Overtaking Natural Gas

Despite the abundance of natural gas being unearthed by energy firms using hydraulic fracturing, the IEA predicts renewable sources- like solar and wind- will surpass the fuel source as the second biggest generator of electricity in the world by 2016. Coal will continue to remain number one. By 2030, non-OECD economies will account for 59% of global energy consumption. As these nations continue to grapple with rising demands as well as costs, they are increasingly turning to wind, solar, geothermal and hydropower to expand their electricity-generating capacity. According to the agency, renewable power will be the fastest growing power generation sector, increasing by 40% over the next five years. According to the report, by 2018 it will make up a quarter of the world's energy mix. That’s up from just 20% back in 2011.

Aside from taking a stance on pollution, IEA found that falling costs are creating a positive environment for renewables growth. According to the report, various renewable energy sources are now cost-competitive with fossil fuels across many countries and a wide set of circumstances. Both on- and offshore wind generation is competitive with fossil fuels in multiple markets- such as Brazil, South Africa, Mexico and New Zealand, while costs for solar continue to decrease. Sun power is quickly becoming competitive in markets with high peak prices. IEA Executive Director Maria van der Hoeven said in a statement that, "Many renewables no longer require high economic incentives.” The IEA also cites private investment as driving much of the growth. While the developed world grapples with budget cuts and austerity measures, private investors continue to plow hefty dollar amounts into new renewable projects independently of subsidies or feed-in-tariffs.

Additionally, private investors continue to be drawn to the emerging world based on positive renewable energy policies. All in all, it’s looking like alternative energy may finally be going mainstream.

Tapping This Growth

Given the IEA’s bullish forecast for renewable energy, investors may finally want to give the sector a shot in their portfolios. Many firms within the sector are trading for peanuts after a long and hard correction. With $185 million in assets, the PowerShares WilderHill Clean Energy ETF (NYSE:PBW) still remains the best broad play in the sector. The fund tracks 51 different alternative energy firms, including heavyweight like First Solar (NASDAQ: FSLR) and Ormat Technologies (NYSE:ORA). The ETF has managed to produce losses for investors since inception. However, given the potential for future growth, the PBW may be now a value buy for long termed portfolios. Investors can also use the iShares S&P Global Clean Energy Index ETF (NASDAQ:ICLN) as a more global play on the theme.

While solar and wind energy get most of the renewable energy spotlight, hydropower actually does most of the heavy lifting. More than 80% of the renewable power generated in the world comes from the source and IEA estimates that these will continue to ring true into the future. That means the various hydroelectric turbine makers will continue to benefit. German industrial giant Siemens (NYSE:SI) offers a host of hydroelectric turbines, generators and other equipment needed to build-out these facilities. The company also specializes in small-hydro facilities which are cheaper ad easy to build. Likewise, French firm Alstom SA (OTCBB:ALSMY) offers a host of hydro products, while AECOM (NYSE:ACM) continues to rack-up more contracts to design such plants.

The Bottom Line

While it may be hard to swallow, but renewables are actually over taking fossil fuels when it comes to electricity generation. The IEA latest study and predictions offer a very bullish case for investing in the sector. The previous picks, along with the Guggenheim Solar ETF (NYSE:TAN), could finally provide juicy returns for long suffering investors.

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  10. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center