Renewable Energy: A Primer for Investors
Renewable energy assets can be an important part of your portfolio. Here is a quick introduction to the different technologies that make up this sector.
What is covered in this article:
Renewable Energy Basics
Renewable energy is any energy that is derived from natural sources, like the sun or wind, that are replenished in the short term. This contrasts with non-renewable sources such as oil, natural gas, and coal which are in finite supply. Renewable energy is part of the subset of power sources in the clean energy category. Clean energy is derived from sources that do not emit greenhouse gases but the sources are not necessarily renewable.
Perhaps the biggest difference between these sources is the amount of pollution or emissions which result from their use. Once built, most renewable energy plants create no emissions. The main exception would be more traditional forms of renewable energy like biomass or wood which do create emissions when used to make heat or electricity, but which also replenish themselves as they can grow back – i.e. they are renewable.
Nuclear energy is generally not considered to be a source of renewable energy since the fuel source is depleted as it is used. Heat results from the fission of elements such as uranium and plutonium which are in limited supply on the earth. Yet, nuclear can be a very clean source of electricity and power since it does not emit pollution.
How much clean energy are we using?
Currently, about 80% of the energy used in the world comes from fossil fuels. This figure takes into account all of the different ways humans use energy around the world – driving cars, heating their homes, creating concrete for a few examples – not just applications that use electricity which comes through the outlet in the wall.
Around the world, 11% of energy consumption is from renewables. Only 3.6% is from hydropower and 2.1% from solar, wind, biomass, geothermal, and ocean power altogether. Nuclear energy makes up 2.2%. It is a bit disheartening to learn that so little of our energy consumption is from clean sources, especially with so many concerns about climate change and pollution.
The numbers for energy consumption in the United States are similar. Fossil fuels, including coal, accounts for around 80% of all energy consumed in 2019. Renewable energy sources account for around 11% of the energy consumed in the United States. This leaves around 8% of domestic energy consumed from nuclear sources.
What are the main types of renewable energy being used?
Biomass and biofuels make up a significant portion of clean energy generation. There are many different forms of these technologies ranging from traditional (burning wood) to modern (ethanol) to highly engineered genetically modified algae.
However, biomass is generally not considered a feasible means to expand renewable energy production since there are several downsides to its use. There can often be direct pollution from the use of biomass for energy production and significant farmland must be diverted to grow the feedstock for biomass fuels. Research into less intensive biomass feedstocks continues and we may soon learn of a more sustainable type of biomass as an option, especially for vehicles.
Geothermal energy can be an incredibly efficient and clean way to produce either electricity or heat. It relies upon using thermal energy generated deep within the earth itself. Properly engineered systems can use geothermal energy for either heating or cooling. Plants can also be built to produce electricity with no resulting emissions or pollution.
The main impediment to utilizing geothermal energy everywhere is that it is very location-specific. Certain locations, such as Iceland, have natural geothermal resources that are easy to access while other locations do not. However, as new technologies are developed hopefully geothermal energy will become more widespread and commonplace.
The main types of renewable energy that people think of when they think of clean power are hydropower, wind, and solar. Put together, these types of energy production make up around only 5% of the total energy consumed in the world.
We might hear a lot about them, but there is still a lot of work to be done to truly bring renewables into the mainstream. These are the sources of renewable energy on which GreenPortfolio is focused because they provide the best path forward to a clean energy future.
The most common type of solar technology, and the one you have probably seen the most, are solar photovoltaic panels. Photovoltaic, or PV, solar panels can take the energy emitted by the sun and convert it into electricity using semiconductors.
You can build small solar systems on the roof of a house or huge commercial PV systems that cover acres of land. Once set up, PV systems require very little maintenance and quietly generate clean electricity which can be used locally or sent over the power grid to be used by nearby neighbors or companies.
Other types of solar power technologies use the thermal energy or heat from the sun. Solar thermal systems can be very simple but effective units that simply heat water for use in homes or other settings. These can be used even in places that are cold through the use of anti-freeze materials which can keep the system producing power even when temperatures drop.
There are also commercial-scale systems called Concentrated Solar Power (or CSP) which use mirrors to focus the sun’s rays to create heat which in turn can be used to produce electric power. These systems only work on a commercial scale as they tend to be very large and placed in very sunny rural locations. They too will run for many years, quietly producing electricity for the communities around them.
One of the best advantages of solar thermal systems is the built-in storage inherent to this energy technology. Thermal storage can even be added to allow CSP plants to run through the night.
This storage is not something available to PV systems which require batteries to store any excess energy. But, as battery companies scale up their production for electric vehicles, it is expected that they will achieve greater economies of scale and learn how to create cheaper batteries for use in solar energy plants.
Hydropower is one of the oldest sources of renewable energy and harnesses the power of running water. This is generally done by channeling water through a spinning turbine to generate electricity.
Storage can be added to this system by damming the source of running water and the operator decides when to allow water to flow and when to produce electricity. Niagara Falls is perhaps one of the most famous locations for this type of electricity production - it produces renewable energy for millions of homes.
One potentially promising form of hydropower is tidal power. This technology aims to harness the power of the waves to generate renewable electricity. By placing modified types of turbines in moving water, this form of renewable energy creates electricity when the water turns the blades.
Unfortunately, it is difficult to find sites where the technology makes economic sense and there are currently very few locations in the United States where it has been implemented. But, perhaps over time, the costs will continue to come down and it will become more feasible – creating yet another tool in our renewables toolbox to protect the climate.
Wind power is divided into two types: on-shore and off-shore. Currently, it is fairly easy to find terrestrial wind turbines installed throughout the United States, mostly in rural locations where there is plenty of wind at hand.
Wind turbines are very reliable and low maintenance, and as we improve efficiencies of scale, increasingly cheap. As more and more wind turbines are installed, wind power is increasingly becoming not only the lowest cost renewable electricity but also, on occasion, the cheapest source of electricity overall.
However, there are very few off-shore wind turbines in the United States despite their prevalence in other countries around the world. Since this is a new industry in the US, it will take some time to develop the infrastructure and to learn how to convince local residents of the benefits of having clean renewable energy being produced along their waterfronts.
Luckily, there are ample wind resources to be harnessed along the coasts of the country which will hopefully soon be put to use and allow dirtier energy sources such as coal to be phased out of our electricity supply.
The Future of Renewable Energy and the Climate
After learning a bit more about renewable energy, it can seem frustrating to see that even though these technologies are time tested and effective, their usage still lags significantly behind fossil fuels.
But, there is good news on this front. In 2019, renewable energy consumption finally surpassed coal for the first time since the 1800s.
As one of the dirtiest types of fossil fuels, seeing a huge drop-off in coal energy is one of the most hopeful signs that things are fundamentally changing within the energy sector.
One reason why this occurred was that the investors who financed new coal plants and upgrades to older coal plants no longer wanted to put their funds into these assets. Climate change is part of their analysis when making these investment decisions which makes coal plants unattractive. As a result, new coal plants are not being built and older coal plants are being decommissioned.
Investors who champion investments in renewables can truly cause an equal and opposite upswing in investments in solar, wind, and hydropower resources. The fundamentals of these investments are long term, reliable and clean – so consider making them a part of your portfolio today.
Disclaimer: GreenPortfolio aims to keep all information on the site current and accurate. However, you may find differences between information listed here and information listed on a financial product provider’s website. Opinions expressed here are not those of any bank, credit card issuer or financial institution, and have not been reviewed, approved, or otherwise endorsed by any of these entities. Please complete your own due diligence before making any financial decisions.
Advertising Disclosure: This article/post may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services but this compensation does not influence our reviews or opinions. Read about our methodology to learn how we choose financial products to include on our platform.