The Risks And Benefits Of Renewable Energy Investing

Among the multitude of investment opportunities available in today’s marketplace, some of the most appealing are renewable energy investments. Simple logic informs us that exhaustible fossil fuels cannot last forever, so renewable energy will necessarily increase in importance over time. Energy consumption is in no danger of decreasing either, so renewable energy investing would seem to make natural sense. Despite this oversimplified picture, however, the current market is in flux, and the future is not clear. As with any time of change, there are great opportunities and also risks associated with this sector.

Growth in the energy sector due to wind, solar, biomass, geothermal, and small hydro sources now represents almost 50 billion dollars annually, making it big business. This currently represents well under 10 percent of households worldwide, meaning that the potential growth margin for alternative energy is spectacular. Now would be a great time to get in on the ground floor and take the elevator all the way to the top.

The danger lies in the uncertainty of any particular renewable energy investment. Many companies are competing for a place in the industry. Some will succeed while many will not. Because technology is developing rapidly, it is difficult to ascertain which will catch on and which will be passed over. Companies must evolve quickly in an uncertain market, making it difficult to predict trends with any accuracy.

Despite a growing market share, the energy sector is still dominated by big oil companies. While these companies will have to change or die in coming years, it seems likely that they will continue to exert pressure against rising alternative energy sources for as long as possible. History proves that the old guard is willing and able to throw a few monkey wrenches into the works in order to tip the scales in their favor.

Venture capitalists and high-risk investors will want to thoroughly research any energy startup. As with any high-risk investment, only serious players will want to get involved using money they can afford to lose. For low-risk investors, many mutual funds offer a ‘green energy’ investment package. These will spread funds out over established companies with proven track records. While still risky, this is a good way to get involved while minimizing risk.

The simple fact is that of the thousands of new and cunning technologies currently in development, all but a few will disappear, along with investors’ money. A few will get rich, many will not. This is not to say that alternative energy investing is not the next huge financial opportunity. On the contrary, it probably is. Investors must be vary wary, however, of the crowded marketplace where opportunity and risk are constant companions.