Investing in Energy and Clean Tech Stocks

Energy and clean tech stocks are stocks from companies that seek to:

Energy and Clean Tech Stocks

Energy and clean tech stocks are stocks from companies that seek to:

improve operational efficiency
lower energy use
decrease waste and pollution generated from company operations

If companies successfully implement clean tech initiatives, the results can include:

less environmental impact
less use of resources
less waste

If a clean tech company’s strategies for operating more efficiently while creating less waste are successful, the result can be increased value for the company and for investors.

Contemporary environmental issues (such as climate change and the scarcity of nonrenewable resources) have increased interest in clean tech investing, which has become a multi-faceted and changing area of opportunity. The scope of modern environmental issues and concerns suggest that interest in clean technology may only grow and improve.

However, clean tech investing usually requires an understanding of these technologies, and the pros and cons of their implementation. Some of the technologies are limited in their application, but with development, many have the potential to be implemented now or in the future, thus offering opportunities for the well educated investor.

Energy and Clean Tech Industry Sectors

Clean tech industries (also called cleantech) are grouped into six sectors:

Energy

Waste and waste water

Advanced materials

Energy efficiency and manufacturing

Transportation

Agriculture

Energy

The energy sector has been the largest industry under the umbrella of clean tech and includes:

solar energy
wind energy
biofuels
geothermal energy

The rising cost and scarcity of nonrenewable resources such as oil has produced greater interest in renewable sources of energy such as solar or wind energy. Companies that fall within this category may reduce their operating costs – and increase their value – if they adopt energy efficient measures by incorporating the use of renewable energy resources into their operations.

Solar energy is a clean and renewable source of energy, and easier to harness in some cases than hydro or wind power. Solar panels convert sunlight to usable electrical energy; solar energy can also be collected for heating. The advantages of solar energy include its accessibility and its clean generation. However, solar energy remains costly, despite government incentives. If solar energy becomes more widely used, competition may result in increased affordability, which may then make it more attractive to investors.

Wind energy harnesses the force of the wind and converts it to electricity. The disadvantages of this otherwise clean source of energy are that wind force can be unreliable or inconsistent. The use of wind energy may grow, but it will likely continue to supplement other clean tech forms of energy.

Biofuels create energy from biomass such as corn, soybeans, palm oil, or cow manure. For investors, the advantages of this source of energy are that it is fairly easily renewed. However, the creation of biofuels could reduce the supply of grain and water. This may increase the price of grain, thus affecting food costs for both livestock and humans.

Geothermal energy comes from the heat of the earth and is regarded as a promising source of energy. However, more technological advances are needed before geothermal energy is available on a broad scale.

Clean Tech Energy Investing – Centralized or Decentralized?

Investors in clean energy technology might also consider how that energy is transmitted. Clean energy created via solar or wind power is distributed in a decentralized fashion. This means that these sources of renewable energy are stationed at individual physical sites rather than a centralized location (such as a coal plant or a nuclear plant).

For the investor, the implications of decentralized power transmission include:

Less capital required (by the company) for startup
Relatively faster reaction to market conditions or advances in innovations
Less likelihood that the company has a large political lobby in place

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While these may be advantages or disadvantages for a clean tech investor, these aspects of energy transmission are worth considering when making investment decisions.

Other Clean Tech Sectors for Investors

Water and wastewater treatment is an area of opportunity for the investor interested in clean technology, given that water is a finite resource that is required to sustain life. The water industry may be forced to consolidate in the future in order to treat water more efficiently and conserve power.

Advanced materials allow for the production and development of improved products with less toxicity, at lower costs and with more efficiency. From an investor’s standpoint, these companies are both improving their profit margin and helping the environment.

Transportation options have broadened to include a focus on hybrid vehicles in the wake of high fuel prices and increased consumer demand.

Further Resources