Green Energy: What an Investor Needs to Know
March 9, 2021
By Emma Elgqvist, CEMAC Analyst
Obtaining energy is one of the most relevant for modern civilization. Green energy has become a real trend in the last 5-7 years. It is designed to save many countries from hydrocarbon dependence. Therefore, it will be useful for investors to know what it is and how to make money on investments in this developing economy sector.
What is Green Energy
Green energy (GE) means obtaining energy without environmental pollution. In some cases, the concept is somewhat narrowed down, calling electricity generation using renewable sources as green energy (this part of the GE is also called regenerative, renewable).
Renewable energy sources (RES) include:
- water streams;
- the warmth of the earth.
Nuclear and fusion energy can also be considered green. This is because the second does not produce substances hazardous to the environment and human health. And first, using the latest scientific and technological achievements can also get similar opportunities. However, these areas are not yet seriously considered in the world, preferring RES as a new energy base.
Why Is Renewable Energy Growing in Popularity?
Green energy has grown at an average rate of 3.2% per year since 2000, while growth in conventional energy has been about 1.4% per year. Individual sectors of energy generation from renewable sources showed strong dynamics. We are talking about the use of solar (average 37% per year) and wind (average 23.4% per year) energy. In 2019, the share of renewable energy in the global energy mix was 26.8%.
There are a number of reasons for this trend:
- Environmental friendliness. Green energy is usually positively perceived by society, as it is environmentally friendly and, unlike thermal power plants and gasoline-powered cars, practically does not pollute the environment.
- Energy security. The use of solar panels, wind turbines, and other devices for generating energy from renewable sources can significantly reduce dependence on imported hydrocarbons. This is especially true for the countries of Western and Central Europe, which practically do not have their own oil, gas and coal production. For many EU countries, an early transition to green energy today is an important part of state policy.
- Growth in efficiency. Green energy is becoming more efficient every year thanks to significant public and private investments in this area.
- New workplaces. Like any other growing economy sector, green energy creates new jobs. At the moment, about 11 million people are employed in this direction around the world.
Now the so-called green energy has become a real trend in many countries, whose governments contribute in every possible way to the development of this sector by adopting relevant laws.
Is Green Energy Really That Good?
However, far from all, the advantages of renewable energy are as indisputable as it is presented. For example:
- The production of one wind turbine leads to emissions of harmful substances and carbon dioxide into the atmosphere in the same amount as during the operation of a gas-fired power plant of the same capacity for seven years.
- The myth of energy security was dispelled in the autumn of 2021, when the lack of wind and cloudy weather in Europe disrupted green generation, as a result of which the cost of gas on the spot European market set a historical record. Dependence on hydrocarbon suppliers is replaced by dependence on weather and climatic conditions. But if you can agree with the first, then there is no way to influence the second.
- The production of generators and storage devices requires raw materials (for example, copper and lithium), which many countries that have announced a "green transition" have practically no stock. Therefore, we are talking about changing dependence on hydrocarbon suppliers to dependence on raw material suppliers.
- In the creation of highly efficient solar panels (we are not talking about traditional batteries made of crystalline, polycrystalline, and amorphous silicon, which have already approached the limits of efficiency), compounds are used that pose a serious danger to the environment and human health. There is no need to talk about green energy without appropriate recycling technologies.
- Hydroelectric power plants cause irreparable damage to the ecosystem of the regions where reservoirs appear.
- "Green transition" is very expensive. Achieving carbon neutrality by 2050 by countries that have announced such plans, according to experts, will cost the global economy about $275 trillion. Simply put, every inhabitant of the Earth will pay almost 35 thousand dollars for this in less than 30 years.
Green Energy for an Investor: Is It Profitable to Invest?
Most experts agree that investments in green energy are very promising over the next 10–15 years. The development of alternative energy sources allows us to solve a number of problems:
- Development of infrastructure (construction of wind turbines, solar stations, etc.) to achieve economic growth.
- Reducing the geopolitical influence of states that supply hydrocarbons to the world market.
- Advancement of the environmental agenda, which is positively perceived by the majority of voters in democratic countries.
Even 10 years ago, when asked whether it is profitable or not to invest in green energy, most experts answered in the negative. Now the situation has radically changed, and favorable conditions for long-term investment have been created. According to optimistic forecasts, by 2040, green energy will completely replace oil and gas.
Among the fundamental factors that speak in favor of the prospects of green energy in the future:
- growing electricity consumption in almost all countries;
- increasing the share of green energy in major electricity-consuming countries;
- the rapid growth of the population, economy, and urbanization of Asia.
Another incentive for the active development of green energy is the support from the governments of many countries. For example, the Joe Biden administration plans to allocate $73 billion in subsidies for alternative energy sources. Similar programs operate in other countries.
All this suggests that the shares of companies working in the field of alternative energy most likely, will continue to grow in price. A good example is Enphase Energy (ENPH), which became the first green energy entry in the S&P 500 in 2021. It currently has a capitalization of $20.5 billion and a margin of 11%. Just three years ago, Enphase Energy was capitalized at $500 million.