How to Invest in Green Energy


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  • Introduction

    • Most people who aren't sociopaths agree that keeping a clear conscience usually requires some kind of sacrifice. For those of us who are also investors, sacrifice may mean abstaining from investing in certain profitable industries whose effects on society we may find objectionable, be they tobacco, weapons manufacturers, oil companies or entertainment corporations. But there's no rule that says you can't both do good and do well. And if global warming and pollution are major concerns of yours, you may just prove that point. If you invest wisely in the growing industry of renewable "green" energy, you could turn your bank account a bit more green as well.

  • Know the Landscape

    • Before investing, it's important to know some key points about the profit potential of the different green industries, not to mention how "green" they actually are. One can buy stocks, mutual funds and exchange-traded funds in each of the following industries, or in combinations of various green industries.

  • Biofuels

    • If you've ever used a fireplace, you're familiar with at least one biofuel: wood. Biofuel is simply fuel that's derived from recently harvested plant material (as opposed to fossilized, ancient plant material, such as coal and oil).
    1. Biofuels are commonly processed from sugarcane, switchgrass, corn, hemp, sorghum and other crop sources.
    2. It seems that every source of biofuel has some adherents who claim that it alone will save the world, but the truth is that any of these crops can impact the environment negatively, when forests are burnt down to make way for farm land.
    3. Some argue that improved technology and richer sources will make biofuels more efficient, lessening the need for farmland—and at the very least, it is renewable, unlike oil (which most scientists agree will eventually run out).
    4. Biofuels, though, are a growing sector and could represent a good investment, financially speaking.

  • Solar

    • If you've ever been in a house that's off the power grid (not hooked up to the electrical system), you might have been amazed to see solar power working on a heftier level than a pocket calculator. Yes, the sun can power a household, but only while it's shining. When dusk settles in, it's time to fire up the generator and burn some evil fossil fuel. Some newer developments, however, are helping solar power to find its potential.
    1. Thanks to advances in nanotechnology, we may soon actually be able to use solar power at night using roof-mounted solar cells.
    2. The sun is always shining somewhere and with improved energy transmission, large-scale solar plants will be able to deliver power further and more efficiently than ever before.
    3. Solar power currently provides 0.04% of the world's energy and, according to a January 2008 article in the Wall Street Journal, it's a steadily growing, though small, industry.

  • Wind

    • Wind power is a burgeoning industry that accounts for a larger portion of overall power generation than solar. Like solar, it is an intermittent source of energy, only working at certain times and in certain places, but represents a clean and viable addition to our energy supply.
    1. Large scale wind-power projects, which include hundreds of high efficiency wind turbines, are called wind farms.
    2. The wind power industry grew by 45% in 2007.
    3. Though they could cut down on air pollution, wind farms are not necessarily appreciated by bird lovers. According to an article in USA Today, they kill thousands of birds, including golden eagles and red-tail hawks.

  • Water

    • Water power is one of the oldest forms of clean energy, having grown over millenia from humble creekside mills to generators on the scale of the Hoover Dam.
    1. To conservationists who are concerned about the lost ecosystems along the Colorado or Yangtze rivers, water power is not a perfect solution. It is viable however: the Hoover Dam generates enough energy every year to serve 1.3 million people.
    2. Recent innovations in water power include wave farms to harvest the force of the tides.

  • Hydrogen

    • The writer Jules Verne called hydrogen "the coal of the future" in 1874. In the 21st Century, that future is coming into focus, with a growing number of companies dedicated to making and harnessing hydrogen for technological consumption.
    1. Though water is the only emission put out by hydrogen fuel cells, the environmental impact of hydrogen is complex. The extent to which hydrogen power is "earth friendly" really depends on how it's made.
    2. Most hydrogen is produced from natural gas, in a process that releases greenhouse gases into the atmosphere.
    3. In theory, the cleanest way to manufacture hydrogen is by extracting it from water in a process called electrolysis—but this process takes a lot of energy in the first place. If the source of that energy is not "clean," it may defeat the purpose.
    4. Much current research and technology focuses on ways to generate hydrogen with minimal emissions, either by using "clean" power-plants that sequester and/or recycle their emissions, or using clean energy (such as wind or solar) to electrolyze water.
    5. To invest in the "hydrogen economy" is to invest in companies either involved in hydrogen generation, that of converting it to electricity, or the development of hydrogen powered vehicles.
    6. Experimental sources of hydrogen generation include algae and lightning.

  • Energy Storage

    • Though it's not the kind of revolutionary investment many green-conscious people would like to make, the advancement of energy storage technology has the potential to conserve energy, whether it's "clean" energy or not.
    1. In off-peak hours, when energy demand is low, any given power plant—whether it runs on coal or the sun—can create a wasted surplus of energy. The more efficiently this energy can be stored, the less energy will need to be generated in the future.
    2. Storage technologies currently in use or development include magnetic flywheels, air compression, thermal methods and electronically based "flow batteries," which are more efficient than traditional fuel cells.
    3. There are even devices which can store wasted energy from home appliances, like air conditioners and water heaters.
    4. There has been speculation that flywheels, which are a high-efficiency magnetic system, may be used to power cars.

  • Other Categories

    • Other elements of "green" industry include electric public transportation, cleaner automobile technology, geothermal energy, cleaner burning natural gas and recycling technology.
    1. For a list of green industries, see the index at the top of the Global Renewable Energy Stock List & Directory page.

  • Roam the Field

    • The first step for any investment is to do some exploring. Since we're limiting this discussion to earth-friendly energy, we'll want to start out on the appropriate turf. Keep your pad and pencil (or text document) at the ready and use the following sources to find some investments that interest you. For each potential investment that catches your eye, write down both the name and ticker symbol, as well as whether it's a stock, ETF or mutual fund.
    1. The Global Renewable Energy Stock List & Directory contains an extensive list, complete with company info, of green energy stocks.
      • The site organizes green stocks into very specific categories (such as "Wave & Tidal Power")—select from the index near the top of the page.
    2. Investopedia's Five Green Mutual Funds You Need To Know covers some successful funds containing investments that are diversified across various sectors of green industry.
    3. SustainableBusiness.com lists green stocks and funds according to industry, complete with updated stock quote data.
    4. For a guide to environmentally conscious "green chip" companies on the stock market, as well as mutual funds, have a look at EcoBusinessLinks.
    5. For a guide to green energy exchange-traded funds, see Seeking Alpha's Choosing An Alternative Energy ETF.
      • Exchange-traded funds, or ETFs, are bought and sold as shares on the stock exchange, but they are not stocks. ETFs either track the value of a particular commodity, or that of a bundle of different assets. Each share represents a portion of the total value of the fund.
    6. Investing In Renewable Energy 101 cites some of the same companies as the resources above, but also includes some detailed analysis of the green energy industry.
    7. RenewableEnergyWorld.com contains news and analysis of the green energy industry, as well as an index of companies.

  • Dig Around

    • Though renewable energy is not always big news, when green energy does hit the mainstream financial pages, it's important to pay close attention. Regularly, take a look at the The Wall Street Journal, as well as any other sources of financial news and analysis you can find. A good start would be to run a site search for "green energy" and "renewable energy" on each of the following.

    1. The Wall Street Journal
    2. The Motley Fool
      • The Motley Fool is a less conventional, but also well respected, source of investing info. Its website is designed for the average investor and based on the idea that most people are qualified to guide their own investments, without the help of financial services.
    3. Stockscouter
      • Stockscouter is MSN Money's daily market blog, analyzing the markets and offering investment ideas. Remember, though, to view everything through a critical eye when it comes to stock advice.

  • Go Deeper

    • While your reasons for investing in green energy may not match the motives of the typical investor, you still want to make sure you're not sinking your hard-earned cash into a losing proposition. After all, if the company fails, it will do the earth no good anyway. With your list of prospects in hand, you'll want to examine both the history and projected performance of a given security before investing in it.
    1. Consider the various drawbacks and benefits of stocks, compared to mutual funds, as well as exchange-traded funds (ETFs).
      • Mutual funds are essentially a variety of smaller investments (assets) pooled into one big investment. When you buy shares in a mutual fund, your portfolio is automatically diversified, making the investment theoretically more stable. For more information, see How do Mutual Funds Work and How to Choose a Mutual Fund.
      • Stocks are less predictable than mutual funds, but also have the potential for faster and greater gains. See How to Buy Stocks.
      • Exchange traded funds, like mutual funds, may contain a variety of assets, but ETFs are traded on the stock market like, and pass along fewer expenses to the investor than to mutual funds. For details, see The Motley Fool's 60-Second Guide to exchange traded funds.
    2. Try out some of the more user-friendly online tools for analyzing investments.
      • MSN Money's Stock Research Wizard generates an analysis of a particular stock or ETF in plain English. rather than Financial-ese. All you need to do is input the name or ticker symbol of the stock/ETF!
      • MarketWatch's Mutual Fund Comparison tool allows you to compare the performance and expenses of up to 25 different mutual funds. Again, you just input the symbols and press "enter." For a explanation of the results, see How to Choose a Mutual Fund.

  • Conclusion

    • It's the responsibility of the conscientious investor to know both the positive and negative influences of his or her investments. Part of the burden of being a conscientious person is having to make compromises in the name of doing good. So keep in mind that while no so-called green investment is without a few negative side-effects, most have the potential to slow global warming. And if you make some money in the process, there's nothing wrong with that, is there?

  • Resources for How to Invest in Green Energy


 


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