Green Energy Investment On The Rise

By Aaron Levitt | March 31, 2011 AAA

As oil continues to hover above the $100 a barrel mark, due to social unrest in the Middle East and the events that are unfolding in Japan, renewable energy stocks have surged. Solar and wind to biofuels, and wave energy, are having their moment in the sun. Short-term euphoria aside, geopolitical pressures in the oil patch, and new concerns with nuclear energy, are causing many nations to revisit their commitment to renewable energy. This new global focus has resulted in increased financing and investment for clean energy projects. This new fervor towards renewable alternative energy has many analysts predicting that 2011 could be the year renewable energy becomes mainstream.

TUTORIAL: Risk and Diversification

Cleantech Investment Rising
Despite the global credit crisis and recession, green energy investment continues to rise. According to the World Economic Forum (WEF), investment in Cleantech and renewable energy hit $243 billion in 2010, a rise of 30% on the $186 billion spent a year earlier. What's even more surprising is that the WEF found that the increase in spending was almost even across the various regions it tracks. Investment across Europe, the Middle East and Africa rose to $94.4 billion, while the Americas saw an increase of $17 billion.

In the Pacific, investment improved to $83 billion. Even those nations that were hit especially hard during the crisis and have been taking away subsidies for renewable energy are now talking about not pulling back so much. Areas like the Czech Republic, Italy and the U.K. have seen rapid growth. More than 90% of green investments were made in the world's 20 most industrialized nations. Most of this growth has come from small scale clean energy projects, such as commercial rooftop solar installations, with global investment almost doubling to $59.6 billion.

However, the developing world continues to inject new life into the sector. Kenya, which relies on hydro-electric generation for 60% of its energy, has strained during severe droughts that have caused supply problems, has plans to significantly increase its reliance on renewable energy sources by 2013. Pakistan has recently partnered with utility AES (NYSE:AES) to build a new $375 million, 150 MW wind facility. Analysts at research firm Clean Edge, predict that South Korea will invest nearly $84 billion in Cleantech investments by 2013, and China will spend between $440 and $660 billion on renewable energy over the next 10 years.

Overall, the clean energy sector since 2004 has seen 630% growth in investments and project financing. Despite the lack of a federal climate or energy bill in the United States and any potential reduction in feed-in tariffs, analysts predict that high and rising traditional energy costs will ultimately increase demand for renewable sources.

Adding Those Mega-Watts
With the continued spending by various governments on green energy and overall long term power demands, investors might want to consider the space for a portfolio. Funds like the PowerShares Global Clean Energy (NYSE:PBD) and iShares S&P Global Clean Energy Index (Nasdaq:ICLN) make it easy for investors to add the sector. However, there are plenty of individual and sector picks.

According to the WEF report, wind power can compete with fossil fuel rivals without government subsidies in many areas, and wind produced electricity has tripled since 2005. The First Trust Global Wind Energy (NYSE:FAN) bets on a global basket of wind energy related stocks. For a domestic dividend wind play, utility NextEra Energy (NYSE:NEE) operates the largest wind fleet in the U.S., and yields 4%.

Despite a dour warning by some analysts, shares of individual solar companies have been on fire since the start of the year and many Chinese solar firms such as JA Solar (Nasdaq:JASO) and China Sunergy (Nasdaq:CSUN) have reported that business will be better in the months ahead. With the bulk of its holdings in China and Germany, Claymore/MAC Global Solar Energy (NYSE:TAN) will be a beneficiary of the growing emerging market interest in solar.

Electric hybrid vehicles, solar panels and wind turbines all require batteries and other storage systems to function. The underlying holdings in the Global X Lithium ETF (NYSE:LIT) focus more on battery production rather than lithium prices. The fund is a perfect proxy for the advanced battery market, and companies like A123 Systems (Nasdaq:AONE).

The Bottom Line
Investments have surged more than 600% since 2004, and analysts predict that this will continue beyond 2011, as various governments look at their own energy pies. Funds like the First Trust Nasdaq Clean Edge Green Index (Nasdaq:QCLN) make interesting bets on the sector's growth. (Find out how morals and ethics can bring you a surprising return. Check out Go Green With Socially Responsible Investing.)

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