Can the Remarkable Run Continue?
Todd M. Walker and Craig R. Walker
What a year 2020 was for clean energy investments of virtually all kinds – from solar to wind, electric vehicles to batteries, green utilities to clean energy financiers. For example, the Invesco Solar Exchange Traded Fund (symbol TAN), was up 233.95% last year, versus 16.26% for the S&P 500.1
For the first time, clean energy investments not only had their best year ever, they were among the top investment sectors of any kind in 2020.2 So, for both investors who caught this wave and those who may be thinking about getting in, the big question now is: will it continue or was it just a bubble?
As of this writing (March 1st) the answer is mixed. Clean energy investments continued to boom this year up to mid-February, then joined the rest of the market in a sharp reversal until they are now about breakeven with the beginning of the year, although still far above Jan 2020. So which way from here?
Six Reasons the Future Looks Bright
While past performance is no guarantee of future results, we believe that clean energy investments not only still have a very bright future but should also be an important component of most portfolios today, whether your objective is growth or current income (there are green investments designed for both). Here, briefly, are some big reasons why:
- Vast potential for remaining growth. The world has only just begun to make the switch to renewable energy. For example, while renewables (i.e., biomass, hydropower, geothermal, solar and wind) in the U.S. continued to expand their lead over coal and nuclear power in 2020, they still provided only 20.6% of the nation’s total electrical generation, even though that was an all-time high.3
- No longer based on government incentives. For years, the main driver of renewable energy was government incentives, which were necessary to justify the outlay. However, with costs coming down so dramatically, renewables can now break out on their own, free of the fear of incentive repeals.
- Biden and worldwide net-zero pledges. Meanwhile, the re-engagement by the U.S. in climate reversal, including re-entering the Paris Climate Agreement, means massive investment in clean energy infrastructure by governments and corporations at home and abroad, as they race to meet their pledges of a net-zero future.
- Mega installations. While home and small business renewable systems are still important to the growth of the industry, the increasing trend toward mammoth solar, wind, and tidal installations is taking clean energy to the next, utility-scale level. In fact, many traditional utilities are now adding their money to this super-system boom as well.
- Stepped up innovation. The sea change to renewables is generating unprecedented new sums for research and development, accelerating innovation. Every day it seems there is a new idea, from green hydrogen and fuel cells to grid-wide battery storage, energy blockchains to tidal energy, biogas to floating solar, all of which offer even more investment opportunities.
- Third world leap-frogging. The new ability of third world countries to use renewable energy to skip the construction of original or replacement fossil fuel power plants opens up a vast new horizon of installation and investment.
Diversify, Diversify – It’s Easier than Ever
For all these reasons and many more, we believe the industry’s time in the sun is here to stay. But that doesn’t change some fundamental rules of investment. Most importantly, do not concentrate your money too much in any one place — including green energy — or in just a few companies in this sector. Fortunately, there are more mutual and exchange-traded funds in this area than ever to help spread your clean energy investments among scores of promising companies with just a few purchases. Some of the best-known include (using market symbols to save space): QCLN, PBW, SMOG, TAN, FAN, CGAEX, GRID, NALFX, PZD, PBD, ICLN.
Dump the Risk of Fossil Fuel Investments at the Same Time
Finally, do your portfolio another favor as you pursue clean energy investments: unload securities with exposure to fossil fuels. These are increasingly dead-end as they lose the price advantage to renewables and face increasing government regulation and loss of subsidies. Coal was the first to go essentially bankrupt; the rest are already wobbling. Eliminate future risk to your portfolio now and make the switch to the much brighter clean-energy wave.
1Morningstar. Past performance is no guarantee of future results.
2CNBC 12-27-2020, “Renewable energy stocks had a record year – here’s what Wall Street sees for 2021”.
3U.S. Energy Information Administration (EIA), Feb. 2021.
Todd and Craig Walker are financial advisors at Greenvest, a Vermont-based personal asset management firm specializing in clean energy and socially responsible investing since 2004, and a B Corporation www.greenvest.eco.
Vanderbilt Financial Group is the marketing name for Vanderbilt Securities, LLC and its affiliates.
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