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I have been interested in adding some energy exposure to the portfolio for some time, but prices had increased so much that I was uncomfortable with all sectors of energy.

In the last month though, prices have moderated with the drop in oil prices and concerns about expiration of government incentives for clean energy alternatives. I am taking this opportunity to add exposure to the clean energy space.

I have purchased a half position in Powershares Global Wind Energy (NASDAQ:PWND) and a half position in Powershares Winderhill Clean Energy (NYSEARCA:PBW). Their names are fairly self explanatory but between the two I now have exposure to Wind, Solar, Fuel Cells and BioMass energy companies.

In the past, I have avoided these area because they seemed a bit too much of a fad, however developments in the past couple of years have changed my opinion and set up the industry for success.

First, oil prices above $100 per barrel create an environment in which these technologies become much closer to parity with carbon energy sources. Over the past 6 months, I have read quite a bit on the topic of long-term oil supply, demand and prices. I have become convinced that $100 oil is here to stay. The Saudis have finally passed the midpoint of their vast reserves and that does not bode well for supply. Additionally, energy consumption is strongly on the rise as China and India continue their march into industrialization.

Second, billions of dollars of venture capital has been invested into clean energy alternatives for the past three years. As an industry, the US venture capital industry is a very good indicator of developing industries. While there are certainly bad investments made every year by VCs, the industry as a whole has a great record of identifying the fastest growing future industries such as the internet, personal computers, software and biotechnology.

Third, political support to reduce our dependence on foreign oil is at a fever pitch in both parties. This is usually a sign of very strong support from the US population for an issue. Politicians parrot what they hear from their constituents and the political pollsters. Given that both parties have moved this issue of to the top of the agenda, it is safe to say that a large percentage of the population supports a drive to clean energy. Given that political backdrop, I am not worried about the looming expiration of tax incentives for clean energy. It seems a safe assumption that these incentives will be extended and there will likely be additional incentives created.

Fourth, the technology for solar, wind and biomass has improved dramatically since their initial push back in the 1970s. They are feasible at competitive rates and given the amount of capital pouring into that industry, we can expect much more innovation and efficiency in the near future.

I am treating these positions as long-term investments. I expect a lot of short-term volatility in these and other energy ETFs, but I plan to hold them through the ups and downs. It is also difficult to evaluate the individual prospects of the companies held by the ETFs since there are so many holdings in each. This investment is a bet on the long-term prospects of clean energy alternatives over the next 5-7 years.

Source: Time To Add Exposure to Clean Energy Alternatives