The Sun Is Shining on Renewable Energy

“Finally!” That sign of relief you heard comes from long-time supporters of renewable energy. After years of seemingly empty promises, renewable energy is finally starting to deliver on its promise.
In the past five years, the share of electricity that the world’s 20 largest economies generates from solar and wind power has soared by 70%. The G20 countries now produce 8% of their total electricity from solar farms, wind parks and other green energy sources.
Importantly, the growth of renewable energy is spread across both developed and developing economies.

Europe Leads the Charge

Leading the way is Germany. Thanks to its policy of Energiewende (energy transition), renewables now make up 36% of its electricity mix.
France, Italy and the United Kingdom all generate more than 19% of their electricity from renewable energy. Overall for the European Union, 18% of the electricity is generated from renewable energy sources.
In fact, astonishingly in the seemingly always overcast U.K., solar power contributed more power to the grid in May than did coal-fired plants. In 2015, the U.K. generated 24% of its electricity from renewables. That is up from just 6% in 2010.

Emerging Markets Catching Up

The story is similar in the emerging world.
In Brazil, 13% of its electricity now comes from renewable sources. And that does not include its vast hydropower resources.
In May, the Dubai Electricity and Water Authority said it received bids to develop solar power projects that will deliver power for less than three cents per kilowatt-hour! That is a record low for solar power to be delivered to the grid.
Saudi Arabia is also developing solar projects with a similar low cost per kilowatt-hour. Last year, Paddy Padmanathan, the CEO of Saudi Arabia’s ACWA Power, one of the region’s largest renewable energy companies, told the Financial Times, “Only four years ago, solar power didn’t make sense because it was not competitive. But in the past 18 months, there has been a big change.”
Part of that “change” has to be the fact that the cost of installing panels in big solar power projects has dropped 75% just since 2010.

A Bright Future for Renewable Energy

This trend toward more use of renewable energy is with us to stay. The International Energy Agency (IEA) forecasts that the sector will represent the biggest source of global electricity growth through the rest of the decade.
The IEA goes on to say that the total capacity of global renewable electricity will rise over the next five years by more than 700 gigawatts. That’s more than Japan’s current total installed power capacity!
Much of that growth will come from China, the world’s largest clean energy market. It accounted for more than a third of the $329 billion invested in clean energy globally in 2015.
Yet, renewables still account for a mere 5% of its electricity generation. So the growth potential for renewable energy just in China is enormous.
We are seeing the beginning of a momentous change in the world’s energy system. We are finally moving away from fossil fuels and toward renewable energy.
The latest New Energy Outlook from Bloomberg New Energy Finance says that, by 2040, zero-emission energy sources will make up 60% of installed capacity.

Investing in the Future

This, of course, should open up some investment opportunities . . . especially since the renewable energy sector has been such a poor performer for so long. The eight largest renewable energy ETFs have shown an average loss of 4.8% over the past five years versus the S&P 500 index’s gain of 10%.
That always interests a contrarian investor like myself.
Here are two renewable energy investments I think are worth considering:
The first, and my favorite by far, is in the wind power sector. It suffered a near-death experience a few years ago and has staged a remarkable turnaround. It is the Danish wind turbine maker, Vestas Wind Sysytems (OTC: VWDRY).
The shares are trading at an eight-year high, which is remarkable for any stock in the renewable energy sector. In its latest quarter, sales soared 46%, thanks to significant drops in the cost of installing wind power, and its earnings margin rose nicely, too. And Vestas boosted its full-year guidance for sales, profitability and cash flow.
The choice for broad exposure to the sector is the Powershares Cleantech Portfolio ETF (NYSEArca: PZD). It is up 11% year-to-date and 17% over the past 52 weeks. This ETF’s portfolio consists of 55 stocks and has a reasonable expense ratio of 0.67%.
Both choices should do well as the age of renewable energy finally seems to be dawning.

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