The long-term promise for renewable energy is certainly great. Expanding global populations and growing middle classes will ultimately drive up demand for energy. However, in the short to medium term, renewable energy hasn't lived up to that promise. Despite the fact that new solar and wind installations are rising and more utilities are turning towards renewables as power sources, stocks within the sector have taken a drubbing. As the price of oil and traditional fuels has fallen in the wake of new recessionary woes, the average alternative energy stock has plummeted even more. Funds like the Market Vectors Global Alternative Energy ETF (NYSE:GEX) sit well below their 52-week highs. However, forward thinking investors can use this downturn to add a dose of renewables to a portfolio.
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Thinking Long Term
Renewable energy really is a long-term bet and the time to place that bet could be now. As oil prices have fallen, the sector now sits at lows not seen since 2008. The broad proxy for the sector, the PowerShares WilderHill Clean Energy (NYSE:PBW) is down about 30% year to date and is about 19% below its 50-day moving average. Now could be a great time to take advantage of the long-term picture for alternative energy. Overall, analysts estimate that total worldwide energy usage will grow by nearly 40% over the next 20 years and renewables will account for a bigger piece of that energy pie. According to the U.S. Energy Information Administration, worldwide demand for non-fossil fuel sources such as solar and wind will increase 22% over the next five years and 85% over the next 25. Some analysts are even more bullish on the sector. Policy makers at the International Energy Agency in Paris, predict that both photovoltaic and solar-thermal plants will provide half of the world's demand for electricity by 2060.
A variety of governments seem bent on hitting those targets. Obama administration has plans to double the U.S.'s output of alternative energy sources over the next two years and government continues to offer tax credits for solar power. In the wake of its Fukushima reactor meltdown, Japan recently passed a bill that allows for incentives that guarantee above-market rates for a variety of renewable energy sources. In addition to these feed-in tariffs, the nation is targeting 28 gigawatts of solar power production by 2020. In Europe, both Germany and Switzerland have begun winding down their nuclear operations and replacing them with renewables. Finally, emerging China recently doubled its solar energy target for 2015.
Eating Your Greens
With so much growth predicted for renewable energy and stocks within the sector trading for so cheap, now could a great time to get in. Funds like the PowerShares Global Clean Energy (NYSE:PBD) or iShares S&P Global Clean Energy Index (NASDAQ:ICLN) are a great way for investors to add a wide swath of alt. energy companies to a portfolio. There are other ways to profit from the trend.
At the top of analyst's lists of potential winners is solar power. The industry stands to benefit from a rush of European nations filling the void left by nuclear energy. Stocks in the sector are also cheap. One such stock is LDK Solar (NYSE:LDK) which has fallen about 35% YTD. The company recently reported a net loss for the second quarter, but given the company's cash on hand, leadership position and falling manufacturing costs, the company is a buy. Similarly, low cost leaders Trina Solar (NYSE:TSL) and First Solar (NASDAQ:FSLR) have fallen hard.
Analysts are also high on wind stocks. Turbine producer stocks have sunk in the wake of supply glut and offer an interesting value. The First Trust Global Wind Energy (NYSE:FAN) can be used as a broad play, while Vestas (OTCDD:VWDRY) is the most efficient turbine producer. Similarly, renewable energy-focused utilities such as Gamesa (OTCBB:GCTAF) or NextEra Energy (NYSE:NEE) make ideal plays on the end users of wind energy.
The Bottom Line
As oil prices have fallen, so has the alternative energy sector. For investors with a long-term focus, the time could be right to add the sector to an energy portfolio. The preceding stocks, along with Yingli Green Energy (NYSE:YGE), make for interesting buys. (For additional reading, take a look at Spotlight On The Solar Industry.)
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