Investing while saving the planet: renewable energy

Climate change is the war we must win: investors can do their bit to fight the good fight and make money while they are at it.

Article updated: 22 November 2018 10:00am Author: Michael Baxter

Climate change

Climate change denial puzzles me: the evidence that the world is getting hotter is pretty clear cut. The five hottest years ever recorded have all occurred this decade. Nine of the hottest years ever recorded have occurred this century, the one year in that top top ten that didn’t occur this century was in 1998.

Until 2005, 1998 was the hottest year ever, and for some odd reason, deniers dined off that point. They kept saying that the world is no longer heating up, ignoring the fact that 1998 was distorted by the El Niño. And then when 2005 came along and set the new record, they ignored the data and kept to their claim.

Now the evidence is so clear they claim that the system used to measure temperatures is wrong.

What motivates such denial?

For me, the case for has always been obvious. For over two billion years, by the process called photosynthesis, plants have been sucking carbon dioxide out of the atmosphere, absorbing carbon and creating oxygen. Animals eat the plants, and when they die, some of the carbon that makes them up is absorbed into the ground. In some cases, over millions of years, via deep movements within the earth, these dead animals became coal or oil or other forms of carbon deposits.

And over this period of time, the climate changed. Since the industrial revolution we have been taking all this carbon, that has sat there for hundreds of millions of years, and burned it. How can this activity not change the climate?

And indeed, the planet has heated up, with temperatures now one degree up since the start of the industrial revolution. The IPC warns that in order to stop temperatures rising by another half a degree, the world needs to cut the use of coal to near zero by 2050, and spend $2.4 trillion on clean energy every year between now and 2035.

The risk to the planet if we don’t do this is unacceptable.

Good news

I do have some good news.

The cost of renewable energy is falling so fast, that the war against climate change can be won by investing in ways that actually make sense in their own right.

Renewable energy costs are subject to what is called a learning rate — every doubling of the global installed base leads to a cost reduction.

The learning rate for wind power is between nine and 19 per cent. Currently wind power accounts for around five per cent of global power. It has been projected that this could reach 35 per cent by 2035. At current prices, wind is already competitive with conventional forms of energy.

For solar, the learning rate is around 16 per cent and it makes up two per cent of global electricity capacity. This could rise to 30 per cent. But if we see electric cars take over from internal combustion engine cars, electricity demand could rise dramatically.

As for energy storage, the learning rate is around 15 per cent, right now global energy storage capacity could meet around one minute of global demand.

The economics are clear: renewable energy is happening, the market is vast. Costs are falling incredibly fast.

How to invest in renewables?

There are many options for investors. I describe some here.

Tesla remains perhaps the most obvious renewable energy bet: not just because of its cars, but because it is the world’s leading lithium ion battery company and because of its solar power manufacturing.

In the UK, there are several funds that specialise in wind and solar farms. They are all pretty good dividend payers, too. Funds include: Greencoat UK Wind, and Nextenergy Solar.

Looking at The Share Centre’s preferred list, there is Barings Global Resources fund. It applies a unique strategy providing a blend of conventional and ‘next generation’ energy companies.

Also, the Black Rock Global New Energy Fund operates purely in the “green” space.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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