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 50% by 2050. That'll require a staggering amount of coal, oil and gas.
But it’s not just fossil fuels that will get the nod. The demand for renewable energy sources is exploding, and according to new study, we haven’t seen anything yet in terms of spending on solar, wind and other green energy projects. For investors, that spending could lead to some serious portfolio green as well.
Rising Market Share
The future is certainly looking pretty “green” for renewable energy bulls. A new study shows that the sector will receive nearly $5.1 trillion worth of investment in new power plants by 2030. According to a new report by Bloomberg New Energy Finance, by 2030, renewable energy sources will account for over 60% of the 5,579 gigawatts of new generation capacity and 65% of the $7.7 trillion in power investment. Overall, fossil fuels, such as coal and natural gas, will see their total share of power generation fall to 46%. That’s a lot, but down from roughly from 64% in 2013.
Large-scale hydropower facilities will command the lion’s share of new capacity among green energy sources. However, the expansion by solar and wind energy will be mighty swift as well.
The Bloomberg report shows that solar and wind will increase their combined share of global generation capacity to 16% from 3% by 2030. The key driver will be utility-scale solar power plants, as well as the vast adoption of rooftop solar arrays in emerging markets lacking modern grid infrastructure. In places like Latin America and India, the lack of infrastructure will actually make rooftop solar a cheaper option for electricity generation. Analysts estimate that Latin America will add nearly 102 GW worth of rooftop solar arrays during the study’s time period.
Bloomberg New Energy predicts that economics will have more to do with the additional generation capacity than subsidies. The same can be said for many Asian nations. Increased solar adoption will benefit from higher costs related to rising liquid natural gas (LNG) imports in the region that are projected. Likewise, on- and offshore wind power facilities will see rising capacity as well.
In the developed world, Bloomberg New Energy Finance predicts that CO2 and emission reductions will also help play a major role in adding additional renewable energy to the grid. While the U.S. will still focus much of its attention towards shale gas, developed Europe will spend roughly $967 billion on new green energy capacity by 2030.
Impressive Renewables Growth
While fossil fuels will still be a massive source of power, the growth in renewables will still be impressive. And that impressive growth could be worthy of portfolio position for investors. The easiest way to play it is through the Invesco WilderHill Clean Energy ETF (PBW).
The $414 million ETF tracks 41 different “green” energy firms as of July 2020, including stalwarts like Canadian Solar Inc. (CSIQ) and International Rectifier (IRF). So far, PBW hasn’t lived up to its promise and the fund has managed to have a ten year return of just 0.68%. That’s versus a 16.91% 10 year return for the S&P 500 as of July 2020. Yet, the fund is truly a long term play and could be a good buy at these levels given the estimated spending. Another option could be the iShares Global Clean Energy (ICLN), which only has about 41% of its portfolio in U.S. stocks as of July 2020.
For solar and wind bulls, both the Guggenheim Solar ETF (TAN) and First Trust ISE Global Wind Energy ETF (FAN) make adding their respective sectors a breeze. Cute tickers aside, both the TAN & FAN have been monster winners over the last few years as both solar and wind power makers have once again returned to profitability. With the sun shining and the wind at their backs, the new report could help push share prices higher over the next few decades.
Finally, as stated above, hydropower will be the dominant renewable energy source driving spending in the years ahead. While General Electric Co. (GE) exited the hydropower turbine business a few years ago, it still makes software and other products for the industry. More importantly, its recent buy of France’s Alstom SA will put it right back in the driver's seat of the hydro-market. Alstom is one of the leading producers of hydropower turbines in the world. Not to be outdone, rival Siemens AG continues to focus on small-scale hydro-electric facilities. Both GE & Siemens make ideal selections to play that renewable sources expansion.
The Bottom Line
Bloomberg New Energy Finance’s recent report shows just how far renewables will go towards our generation needs. Given the anticipated spending spree in the sector, investors who choose to "go green" could see their holdings grow along with the demand for energy.