There are many types of energy and there are many types of energy investments available. The energy market is changing as the needs of the global economy change. It is important to remember that energy use is directly correlated to economic growth.

Investors may want to include some alternative energy stocks in their holdings since alternative energies may directly benefit from current diminishing oil and natural gas reserves. The question for any investor is “When?” The answer depends on government policies and private investment.

The Price of Oil

The price of oil has been the most important indicator of the world economy. When oil prices rise sharply, it can shake an economy to its core and cause a volatile stock market.

One approach to this tumultuous situation is to invest in diversified real asset companies; these are companies that already profit from other industries, but have taken on the risk of investing in alternative energies. You may also choose to invest in major oil companies that are positioned to become leaders in alternative energy.

Investing in Oil

Oil and gas companies are like all other companies—they want to maximize profits. Some companies are better at this than others. The companies with the largest oil reserves may benefit in the long run. Some may be saving production until oil prices are higher.

The oil companies that are serious about alternative energy and maximizing oil field profits may be worth studying. These companies may be well positioned to benefit from the energy shift from oil and natural gas to alternative sources.

Electricity: Natural Gas and Coal

Coal is the cheapest and one of the most abundant resources available. Most power plants run on coal, but coal emits more greenhouse gases than any other fuel. Also, coal is energy and labor intensive, meaning a lot of coal is required to produce energy and operating costs are high.

Natural gas is replacing many coal burning power plants, but there are high operating costs and the industry is highly regulated. Also, natural gas is difficult to transport. It must be liquefied and is highly explosive. As demand increases, and readily available supplies decrease, accessing natural gas at certain price levels becomes counter-productive; it costs more to produce.

Biofuel/Biodiesel

This energy source is often government owned, regulated, and/or subsidized. In addition to government regulation, there is heavy dependence on water since biofuels are crop based. However there are a number of biofuel companies that are currently operating at a profit.

Solar Power

Solar can be a viable energy alternative for one main reason: it can be locally installed. A solar panel can be placed on top of a roof and no big generator or power lines are necessary. Unit costs are expected to decrease, as silicon prices come down, however, installation costs remain high. Some large utility companies are also investing in solar power plants.

Wind Energy

Wind energy technology is simple and effective. Wind energy usage has grown recently. The costs involved with wind energy are far less than coal and natural gas. However, there are costs associated with wind energy; cables lines are necessary to transport it.

Some Types of Investments

-        Energy Funds – Rather than pick an individual energy stock, there are mutual funds that specialize in energy. Be sure to check for management fees and proof of steady returns over the years.

-         Energy and Natural Resource Funds invest in both energy and non-energy resources. Watch for front and back end fees.

-        Exchange Traded Funds (also called ETFs) are cheaper than mutual funds since there is no fee. You can buy up an energy sector with a basket of 20 stocks online or over the counter trading. ETFs tend to benefit from a bull market. However, for the investor that wants exposure to the market, ETFs may be a perfect option. To see how a particular stock or ETF has performed, go to www.finance.yahoo.com

-         Utility Stocks – Some publicly held utility companies have invested into alternative energy such as wind, nuclear, and solar. These companies are typically traded on the New York Stock Exchange. Be sure to see historic returns before investing.

-         American Depository Receipts (ADRs) allow investors to take advantage of foreign companies in the energy and alternative energy markets. They typically trade on the The New York Stock Exchange.

Additional Resources:

-         Nightly Business Report:     www.pbs.org/nbr/

-         International Energy Agency:       www.iea.org

-         The Economist Newspaper Web site:       www.economist.com