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How to Invest in Renewable Energy: Solar, Hydrogen & More

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From rooftops filled with solar panels to open fields littered with wind turbines, investing in renewable energy is becoming increasingly popular as more people become aware of the environmental and economic benefits of switching to clean energy sources. This was the case during the early stages of US President Joe Biden's presidency as he pledged more than half a trillion dollars towards climate change efforts and growing the renewable energy sector. Since then, we've seen tremendous efforts towards making clean energy more available, as electric vehicle chargers become commonplace and electric vehicles reach the mass market. By considering renewable energy stocks, investors gain access to some of the world’s fastest-growing companies and benefit from their long-term growth potential. In this article, you will learn about the different types of renewable energy that can be added to an investment portfolio. These include everything from solar power to wind energy. We'll also offer a brief outlook on how these industries might fair in the long run.

What Is Renewable Energy?

Renewable energy is energy derived from natural sources that are replenished at a higher rate than they are consumed. Examples include harvesting solar energy from sun rays and wind energy from spinning turbines.

The Growing Need for Green & Renewable Energy

The need for renewable energy is rapidly growing due to the noticeable effects of global warming. Climate change is leading to extreme weather conditions, rising sea levels and an increase in the occurrence of natural disasters. To combat this, countries have been pushing for a shift away from fossil fuels towards renewable alternatives. While government subsidies and incentives have been driving renewable energy interest, the preference for clean energy spiked during the early stages of the Ukraine-Russia conflict as oil and natural gas prices were shocked due to the sudden scarcity of these resources. These factors combined seem to have made the pivot towards renewable energy more attractive for both individuals and businesses.

As a result, the demand for renewable energy is on the rise and is expected to continue its exponential growth over the next decade as the world seeks to reduce its carbon footprint and greenhouse gas emissions. This provides an opportunity for shrewd investors looking to capitalise on the increased demand through companies that are developing or utilising clean and renewable energy sources. From solar to hydrogen fuel, here's everything you need to know before deciding which renewable energy companies to invest your hard-earned cash in.

How to Invest in Renewable Energy: Types of Renewable Energy

In each section, we selected some of the top renewable energy stocks in their respective sector based on their market capitalisation and explore how they've managed to earn their valuation.

Investing in Solar Energy

Solar energy is one of the most accessible and widely adopted forms of renewable energy. The abundance of sunlight in many regions presents a vast opportunity for solar power generation. That's why investing in solar energy-related stocks is so attractive for investors looking into the long-term future of renewable energy companies. The future of solar energy is, indeed, bright. As the world moves away from traditional fossil fuel sources to renewable sources, solar energy stands out as one of the most promising and abundant clean energy sources available. Over the years, solar power has been steadily increasing in popularity as technological advancements like improved efficiency, storage capacity and affordable production costs for photovoltaic cells attract mainstream adoption from those keen on embracing a future where solar energy takes centre stage. Even Tesla at one point in time attempted to make solar panel farms a core part of their business. This is a case of right idea, wrong time because Tesla was ahead of its time. However, things have changed with how technology has advanced to the point where scaling up and achieving profitability is possible with solar farms.

First Solar (NASDAQ: FSLR)

Of the various best renewable energy stocks featured on this list, First Solar is one that investors should certainly add to their watchlists. As the global leader in solar energy solutions, First Solar stands out from the competition because of its proprietary thin-film photovoltaic module. This effectively gives First Solar an efficiency and manufacturing cost advantage since each module is manufactured using less energy and materials than its silicon panel counterpart. Additionally, First Solar possesses a healthy balance sheet and strong cash flows despite aggressively investing in growth. In 2019, the free cash flow was close to negative $500,000. However, the trailing twelve-month free cash flow is now at negative $30,000. This highlights the improving fundamentals of First Solar despite being a growth-focused company seeking to scale up its revenue numbers. And that’s on a $20b market cap meaning that it is close to breaking even.

SolarEdge Technologies (NASDAQ: SEDG)

Alternatively, investors bullish on the solar energy sector and renewable energy stocks in general can also keep an eye on SolarEdge Technologies. Although it is smaller than First Solar in terms of market capitalisation, SolarEdge Technologies offers a unique edge in how its power optimizers and inverters improve DC-to-AC electricity conversion. This allows SolarEdge to produce one of the most affordable power optimizers on the market and maximise solar energy output with minimal energy conversion losses. To further diversify its revenue streams and growth, SolarEdge has also expanded into other smart energy market segments. With investments and acquisitions in storage, electric vehicle (EV) charging, batteries, uninterruptible power supply (UPS) systems, EV powertrains and grid services solutions, SolarEdge shows tremendous growth potential in the long run as we see the early hints of such growth in its constantly growing year-on-year revenue numbers.

Investing in Hydrogen Energy

Hydrogen, often referred to as the "fuel of the future," has gained considerable attention as a clean and versatile energy carrier compared to its fossil fuel counterparts. It can be produced using blue and green hydrogen methods, both of which we'll explain in more detail. Blue hydrogen involves the process of burning natural gas and isn't the cleanest form of hydrogen energy production since it requires the use of carbon capture technology. By trapping and storing the carbon dioxide by-product, overall greenhouse gas emissions are reduced. On the flip side, the green hydrogen process involves utilising water electrolysis to split hydrogen from water molecules. This is the preferred method for emission-conscious businesses because of its lack of carbon emissions. Regardless of the method used, the hydrogen derived from these production methods will be used to fuel hydrogen fuel cells, which essentially work like batteries that generate electricity from electrochemical reactions. Such fuel cells find application in various sectors, such as transportation, industrial processes and power generation. This makes investing in hydrogen-related projects and technologies worthwhile in the long run for countries looking to transition to a low-carbon economy. Of the various best renewable energy stocks related to hydrogen energy, these are our top picks.

Plug Power (NASDAQ: PLUG)

Did you know Plug Power created the first commercially viable market for hydrogen fuel cell technology? Today, Plug Power is regarded as one of the most well-known green hydrogen companies among today's top renewable energy companies. They seek to revolutionise the vehicle industry by designing a fuel cell system solution that replaces lead-acid batteries. From production and storage to delivery and energy generation, Plug Power's end-to-end green hydrogen ecosystem is the company's most attractive edge as its vertical integration will help businesses cut costs while scaling up these renewable energy solutions. With its large customer base in the transportation and logistics sector and how aggressively Plug Power is spending to improve its infrastructure, Plug Power is likely one of the more attractive hydrogen energy stocks to add to your watchlist if they're able to find their footing and strengthen their fundamentals.

Bloom Energy (NASDAQ: BE)

With more than 10 years of experience in powering some of the most well-known companies and organisations around the world, Bloom Energy produces solid oxide fuel cells that convert biogas, natural gas or renewable sources into electricity. Bloom Energy's main appeal lies in its products' ability to provide clean and reliable power that can scale from as low as a few kilowatts all the way up to hundreds of megawatts. As one of the best renewable energy stocks on the market today, Bloom Energy now boasts a customer base of more than 400 organisations, including industry giants such as Google, Apple and Microsoft. In the future, Bloom Energy plans to use its existing technology base to expand into other areas such as stationary energy storage solutions and distributed power generation systems. By doing this, they can increase their addressable market size, further driving up revenue numbers for investors who are bullish on renewable energy stocks.

Investing in Wind Energy

We can't cover investing in renewable energy without mentioning the age-old sector of wind energy and harnessing wind power from towering wind turbines. Onshore and offshore wind farms are becoming increasingly popular as countries seek to expand their renewable energy capacity and explore alternative clean energy sources. Although wind energy detractors might doubt the renewable aspect of wind energy and point out the long-term feasibility of turbine usage because of wear and tear, these concerns are slowly being addressed with advancements in rotor technology and innovative turbine designs. In terms of investing in specific renewable energy sectors, the wind industry certainly seems the most appealing because of its growth potential and the sheer amount of investments already poured into researching cost-efficient solutions for harnessing offshore and onshore wind power. Here are the wind energy companies which we think benefit most from such innovations.

Clearway Energy (NASDAQ: CWEN)

If you're looking for a renewable energy stock with good fundamentals and strong growth potential, then Clearway Energy is the stock for you. As one of the largest renewable energy operators in America, Clearway Energy boasts more than 4GW of wind generation projects, which it uses to generate clean electricity and sell it to utilities or large commercial customers. Growth-wise, Clearway can rely on its parent company Clearway Energy Group to grow its pool of new contracts to work on. With a possible 27,700MW worth of renewable energy projects in the pipeline, Clearway Energy shows tremendous potential for long-term growth down the line. Beyond wind energy generation, Clearway also offers energy services in the solar energy sector. This includes projects like community solar farms and distributed solar projects. By offering customers a hybrid solution of different forms of renewable energy sources, Clearway Energy is able to better cater to their needs while also expanding its own portfolio of renewable energy assets.

NextEra Energy (NASDAQ: NEE)

As one of the largest utility companies in the world, NextEra Energy's market capitalisation stands at more than US$150B at this time of writing. Its current portfolio includes wind facilities that span multiple states in North America and generate more than 22GW of clean energy. With a focus on more than doubling its offshore wind generation capacity by 2024 through strategic acquisitions, NextEra Energy is certainly one of the best renewable energy stocks out there when it comes to growth potential. The company is also exploring possibilities for developing offshore wind projects in the Gulf of Mexico and other deep waters that can significantly boost its renewable energy generation capacity. It has already secured two such projects in Florida and Massachusetts which will each cost more than US$2 billion, making NextEra Energy's foray into offshore wind a defining moment for renewable energy investments.

The Risks of Investing in Renewable Energy

Although renewable energy stocks offer a lot of growth potential, the sector also comes with its own set of risks. Renewable energy projects often require large amounts of capital expenditure and investments in new infrastructure that may not yield returns for years. This is especially true for offshore wind projects which come with high costs associated with constructing deep-water turbines and laying down transmission lines. The same rings true for solar energy projects as solar panels require constant maintenance to ensure they're performing optimally all year round.

Additionally, the global trend of cutting subsidies for renewable energy could put a significant dent in returns for investors that have placed their bets on certain companies. As businesses and consumers become more receptive towards green renewable energy, there could be less incentive for governments to continue offering attractive tax credits and subsidies for renewable energy companies down the line.

Finally, there is also the risk associated with untested technologies such as green hydrogen and community solar projects which may not turn out to be profitable investments down the line. This has been the case in the past where the long-term value derived from generating renewable energy is overshadowed by overhead costs and storage fees.

The Bottom Line

From elaborating upon the intricacies of renewable energy sectors to explaining what makes each renewable energy company unique, we hope our guide to investing in renewable energy has helped you better understand the future potential of energy sources like solar, hydrogen and wind. Investing in these top renewable energy stocks can be risky because of their lack of profitability when challenged with tough macroeconomic headwinds. However, they present an incredible opportunity to contribute positively to the planet while achieving personal financial goals. By aligning our investments with our values, we can be part of the solution to combat climate change and create a better world for generations to come.

Inspired by our renewable energy article? Begin your investing and trading journey with us today. Also, if you're interested in reading up about similar high-growth sector outlooks, check out our guide to investing in semiconductors and artificial intelligence.

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