- Renewable energy has become increasingly important as more people have concerns about climate change.
- Trends across the industry include domestic production and the growing importance of storage.
- Production capacity is set to continue accelerating over the next few years.
Renewable energy has grown in importance over the past few decades as more people begin to understand the impacts of climate change and countries look to limit their dependence on foreign sources of fossil fuels.
The renewable industry includes various sources of power, including hydroelectric, wind, solar, and more. Despite the variety of ways to generate power, there have been common trends across the industry.
Here’s what you should keep in mind if you are considering investing in this sector.
Renewable energy history
Renewable energy was the only energy source that existed for a large portion of history. Before the widespread use of coal in the mid-1800s, people burned wood and other biomass that could be regrown. Wind and water were also common power sources, with boats using large sails and mills relying on wind or water flows.
The discovery of coal and other fossil fuels upended the way of doing things as people began to burn these fuels to power the Industrial Revolution.
More recently, renewables have regained their importance as a way to fight against climate change. They also offer a way for nations to improve their energy security by reducing reliance on imported oil and other fossil fuels.
Renewable energy encompasses many different industries, from wind power to solar power industries. However, these businesses are interconnected in many ways, and there are common trends for investors to keep an eye on.
Batteries and storage
One major drawback of many renewable energy sources is that they struggle to produce consistent output 24/7/365.
Solar panels are great in many sunny regions, but the sun goes down every night, and some days see clouds. Wind power can produce huge amounts of electricity, but the wind doesn’t always blow.
With fossil fuels and other power sources, you can produce energy without worrying about the whims of nature.
A significant trend in the renewable energy sector is finding a way to store excess power when conditions are suitable for production. Many companies have entered the power grid energy storage industry to try to solve this problem.
Some companies have started to focus on making batteries that are less expensive and have greater capacity. This crosses over into other aspects of green energy, such as electric vehicles, where battery capacity is essential. Businesses like Tesla, Toshiba, General Electric and NextEra Energy have focused on this problem.
Given that batteries have applicability to all forms of renewable power, investors are keeping a close eye on the growth of this industry and looking for companies that might be close to a breakthrough.
Home solar installations
A popular way for individuals to go green and save on electricity costs is to put solar panels on their homes. Thanks to the potential savings and tax incentives available, people have added solar to their homes at an accelerated rate.
In 2020, residential solar production capacity was 2.9 gigawatts. That grew by 34% to 3.9 gigawatts in 2021. Through 2022, the industry continued to set quarterly growth records, adding more capacity each consecutive quarter.
Investors looking to profit from this trend may invest in the businesses responsible for marketing and installing home solar systems. Last year, President Biden signed a bill increasing the tax incentive for solar installations, which may help installations grow even further.
One major problem for wind power is finding space to put windmills. Wind farms require large amounts of open space, which can be challenging to find in developed areas such as cities along the east and west coasts.
Offshore wind, meaning windmills located in waters off the coast of the United States, solves this issue by offering large amounts of open space. In mid-2022, more than 40 gigawatts of generating capacity was under development compared to just 42 megawatts of currently operating offshore wind power.
With roughly 20 gigawatts of capacity under construction or in the permitting phase, this portion of the industry is likely to grow massively in the next few years.
The COVID-19 pandemic showed how fragile the world’s supply chains were, setting off a cascade of rising prices and product shortages. This has caused many companies to bring their manufacturing back to the United States to ease supply chain issues.
American manufacturers have increased their production capacity for green energy technology, including solar panels and other equipment. However, production has fallen well short of demand, with U.S. manufacturers making just five gigawatts of solar panels compared to the 20 gigawatts installed in 2021.
If domestic manufacturing continues to grow in popularity, investors may look to purchase shares in the companies making those panels locally.
What it means for investors
Green energy is here to stay and will likely grow in importance in the following decades. About two-thirds of Americans state that they are somewhat or very worried about climate change, and green energy is one of our best ways to fight this issue.
Investors interested in the industry may look for investment opportunities that expose them to new and growing renewable technologies or look for investments in related sectors. They may also consider divesting themselves of companies that focus on fossil fuels, which may lose importance as the capacity of renewables increases.
Even if you know you want to invest in renewables, finding what to invest in can be complicated. Q.ai uses artificial intelligence to help you invest toward any goal and in any economy. With its Investment Kits, investing can be simple and fun.
The bottom line
Climate change is a massive problem that could impact everyone. Renewable energy has gained importance as a tool for fighting against further changes to our climate.
Investors who want to profit from a greener planet might look to add renewables to their portfolios.
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