Alternative Energy Funds – The Basics And Why To Invest

Geothermal PlantThere is a relatively new sector on the street these days which is garnering a lot of buzz. Alternative energy, and specifically renewable or ‘green’ energy, is any energy source that is an alternative to fossil fuels. As we all know, fossil fuels will soon run out. Finding a replacement or replacements to this energy source is a solution that not just our country, but the entire planet will have to face sooner or later.

Fossil Fuels

‘Oil is power.’ In the past 100 years, this phrase rang true throughout the world. During World War II’s infamous ‘Battle of the Bulge,’ axis forces made a push to acquire a large allied stockpile of oil. They failed, which ultimately sealed their fate. Recent conflict in the middle east has been centered mostly on oil. Today, countries without oil stores are at the mercy of the countries that do have these stores. But there is a movement which has been picking up steam during that past few decades – a shift towards finding alternative energy sources.

Forms Of Alternative Energy

The building of hydroelectric dams around the country halfway through last century could have started this movement. Nuclear testing and research could have also contributed to it. Either way, ‘going green’ is a phrase we hear every day in modern society. ’Green energy’ is a buzzword everywhere from politics to pop culture, and is sweeping the nation. Green energy includes:

  • wind power
  • solar power
  • geothermal power
  • hydroelectric power
  • biofuels

Wind

Wind Farm

Wind power captures naturally occurring wind to turn a wind turbine. The revolutions of the wind turbine rotate magnets, which produces an electric current. Home wind turbines can charge batteries to be used for home appliances. Large scale wind farms produce large amounts of electricity and can supplement power plant production. Wind power currently supplies approximately 1.8% of national power production.

Solar

Solar Plant

Solar power harvests sunlight through the use of photovoltaic cells. Solar panels are layered with these cells, which turn light into electricity. The electricity can be used to charge batteries or power household appliances. Solar power farms harvest light on a large scale, and also supplement power plant production.

Geothermal

Geothermal Plant

Geothermal power utilizes heat that is generated by the earth. Radioactive decay in the center of our planet produces heat, which is conducted towards the surface. The heat is lost as it travels outward, so tapping the heat deeper into the earth’s crust is critical. Geothermal power plants currently supply approximately .3% of national power production.

Hydroelectric

Hydroelectric Power

Hydroelectric power uses the kinetic energy of water to spin power generating turbines. A dam is constructed on a river, producing a reservoir. The water flow is regulated through the turbine based on the energy need. 100% of Paraguay’s power needs are met by the production of the Itaipu dam. 90% of the power produced is exported to Brazil.

Biofuels

Biofuel

Biofuels are an alternative to fossil fuels. Organic alcohols can be made by fermenting the sugars, starches, and cellulose of fruits, vegetables, and other plants (sugar cane) into alcohol by way of enzyme interactions. Ethanol is a common additive in gasoline. This is a renewable source of energy that right now is highly subsidized, but has promising prospects for the future.

These are five of the most common renewable energy sources available. Other forms that are either still in the developmental phase or have a lower potential are tidal power, wave power, biomass power and anaerobic power. Renewable energy has a bright future.

Investing In Green Energy

There are many different forms of renewable energy, which falls under the alternative energy umbrella. Solar power, wind power, hydroelectric power, and biofuels are all examples of ‘green’ energy. Because of the fact that ‘going green’ is politically savvy, there will be a lot of money made by companies dealing in this kind of energy because the government will support and subsidize this type of energy production, even if it isn’t as efficient as just using fossil fuels. So even for the short to mid term (fossil fuels are not expected to run out for several more decades), these companies will be profitable. Looking longer term, these companies will be the main energy producers, so profits are only projected to rise as fossil fuels supplies fall and as research and development in these new energy sources advances.

Alternative Energy Mutual Fund Options

The real challenge is picking the winners out of the many alternative energy companies. One idea to consider is to hedge by investing in mutual funds or ETFs. The top alternative energy mutual funds out there, believe it or not, have a mix of renewable energy companies and fossil fuel companies. Lets face it, for the next couple of decades, the world will still be very reliant upon fossil fuels. Oil prices are on the rise, and that trend will likely continue as unrest continues in the middle east. Finding the best alternative energy funds on the market will require some diversification across different energy sources.

A couple specifically alternative energy mutual funds to look at include Allianz RCM Global Water (AWTAX) and Pax World Global Environmental Markets (PGRNX).

Alternative Energy Exchange Traded Funds (ETFs)

Alternative energy funds can come in the form of mutual funds (alternative energy mutual funds), like those offered by respected brokerage companies, or in the form of ETFs. ETFs hold a few advantages over mutual funds in my opinion. First, ETFs can be traded like any stock. They can usually be found with more specificity to which market you wish to target. For example, finding alternative energy mutual funds that only have holdings in solar power might be difficult. There are ETFs for solar energy, solar and wind power, wind and hydroelectric power, and so on. ETFs also don’t have the fees that are associated with mutual funds.

Some ETFs in this sector to look at include the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) and the PowerShares WilderHill Progressive Energy Portfolio (PUW).

Whether you like the prestige of mutual funds, or the specificity of ETFs, the political correctness of renewable energy or the availability of fossil fuels, don’t overlook energy in your portfolio. Alternative energy is an up and coming sector in the market, and the next couple of decades will bring many changes. Make the right decisions now and you could definitely score large profit margins from the certain shift in the tide.

2 thoughts on “Alternative Energy Funds – The Basics And Why To Invest

  1. The most recently developed wind-turbine technologies have brought us wind-produced energy which is more cost efficient as well as more widespread. More state-of-the-art wind energy technologies are typically more market competitive with conventional energy technologies. The newer wind-power technologies don’t even kill birds like in days of old! Wind energy production is a growing technology, and companies engaged in it would make up an excellent part of a growth or aggressive growth portfolio.”

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