3 Ways to Invest in Renewable Energy
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Renewable energy accounts for approximately 16% of total energy consumption. While most of that is provided through biomass and hydroelectricity, there are smaller segments of renewable energy -- such as wind, solar and ethanol. These smaller segments of green forms of energy present a considerable amount of opportunity for investors, who could potentially get in early on a power-producing segment that hasn't fully caught on.
While these stocks pose a lot of potential upside, they are also risky, due to the fact that what they produce isn't yet used by the mainstream and, therefore, these companies don't have a reliable stream of revenue. Then again, neither do traditional ways of producing energy, due to the global trend towards environmental friendliness.
Investing in wind
Wind energy is still very much a speculative industry, but several publicly traded companies are making major headway.
TransAlta (NYSE: TAC) is Canada's largest publicly traded renewable energy company and looks to be committed to the environmentally friendly generation of energy.
A lot of the potential construction that TransAlta is planning is in wind energy. The firm announced its plan to expand merchant capacity in Alberta. The difficulty the company may experience in that expansion is the legislative challenges. That could make it difficult for the company to take advantage of declining construction prices. However, the firm can find shelter in the fact that its gas plants in Alberta are expected to be completed soon, after the firm partnered with Berkshire Hathaway. The company can also realize growth in the western grid of Australia, an area that TansAlta gained capacity in early this year.
Investing in solar power
Solar energy is a very realistic option for producing energy on a massive scale, as has been proven recently by the UK government's proposal to develop a solar energy epicenter that spans 100 Olympic parks.
SunPower (NASDAQ: SPWR) has a business model that is vertically integrated. This allows the firm to attain major projects throughout the U.S., in which construction is supposed to be finished by 2016. SunPower is the most efficient in the industry at converting sunlight into energy. While there has been a downturn in the solar industry, SunPower has the capital that it will take to make it through these difficult times.
The industry's dark days could be turning around, as the firm managed to increase year-over-year revenue by 28% in the first quarter. SunPower is also improving overseas prospects by signing new contracts in Japan. But Europe, Middle East and African (EMEA) sales need to improve, as sales there declined by 55% from the previous year. Gross margins were a negative 33%.
Investing in ethanol
Ethanol fuel production tripled between 2000 and 2007, from 4.5 billion gallons to 14 billion gallons. In 2011, the production reached 22.36 billion gallons. The global consumption increased from 3.7% to 5.4 % between 2007 and 2008.
Green Plains Renewable Energy (NASDAQ: GPRE) looks to profit from ethanol. The company operates ethanol products, argribusiness, corn oil production, and a marketing and distribution segment. The company appears to be in a healthy position for growth. On June 3 it announced its purchase of Choice Ethanol Holdings. That dry-mill ethanol plant will provide an additional 50 million gallons of capacity for the plant. Its current operating capacity is 740 million gallons.
Investing in renewable energy
Renewable energy is an unproven sector, which poses both opportunity and risk. While these companies have a lot of upside if their respective sectors become mainstream, they could also crumble if their industries don't present practical widespread use. For the risk-averse investor, I recommend TransAlta, due to the company's diversification.
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