Alternative Energy for Investors: High Volatility, Great Promise
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Looking at the alternative energy market, the industry's growth rate is between 20% and 30%. Every day you can read about a new technology, a new type of solar cell or a new way to produce electricity from sea waves. This sector is promising. On one hand, after the US Presidential elections, we could see an impulse to renewable energy sources initiatives. Political incentives could influence the industry. On the other hand, growing energy demand will continue in the next years. The oil industry will invest more to increase output, but it will take time.
However, many make assumptions about a peak oil and the fact that increased production, even if possible, would never manage to meet increasing demand. In this context, we have to expect an energy supply crisis in the coming years. Some say it has already started. And renewable sources of energy could help limit the consumption of fossil fuels. Should oil prices remain high or even rise more, renewable energy would become more competitive.
This industry is attractive to investors with an appetite for risk. In the medium term, returns are promising, but volatility is quite high. After the initial phase, when many new companies enter the market, a process of selection begin and only the strongest survive. Since January, renewable-energy companies have been very weak compared to the performance of companies involved in the oil industry.
In fact, as an example, the PowerShares WilderHill Clean Energy Portfolio (PBW) in the figure, has lost about 35% from its high of December 2007. I cannot explain the reason for this poor performance. I would have expected the opposite, actually. One reason could be that, as the economic climate becomes difficult, investments in new technologies could decrease. Most of these companies are still losing money and many could not manage to continue operations. However, I do believe that the sector is quite interesting
Disclosure: none
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This article has 9 comments:
- cjwirth
- 40 Comments
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Jul 06 09:22 AM- fireball
- 271 Comments
Jul 06 12:53 PM- Muddling Investor
- 221 Comments
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Jul 06 05:31 PM- paolo pezzutti
- 2 Comments
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Jul 06 05:52 PM- Robert Sczech
- 23 Comments
Jul 06 09:41 PMIn my opinion, we should invest into renewable energy as long as the energy produced is much higher than the energy needed to produce this alternative energy infrastructure.
- dawdler
- 2 Comments
Jul 07 12:31 AMAlso, I agree with the thought that the industry probably won't really see great returns until they get gov't subsidies or some radical innovations occur. But the way things are going, our government may HAVE to subsidize these sources of energy production.
- bzh1111
- 14 Comments
Jul 07 04:23 AM- Muddling Investor
- 221 Comments
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Jul 07 01:19 PMBig problem with subsidies: they will be cut. Sooner or later. You can't support more than 10% of energy production with subsidies, country will go bust. Altenergy is a good engine for speculation, but no good at all for long term investment.
More on that in coming article in my blog.
- Stockguy456
- 65 Comments
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Jul 08 05:27 PMMore by Paolo Pezzutti
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