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Renewable Energy Investment Factors

October 11, 2016


Green, renewable energy has been slowly but steadily taking center stage in the global energy discussion for quite some time now. Various factors appear to be contributing to the new era of green (or “clean”) energy sources, and in turn, new investment opportunities. 

Unlike traditional power sources, green power sources have the potential to be neither cyclical nor seasonal, meaning wind and solar investment interests might not vary as much during the year as natural gas and oil interests do.

The cost of renewable energy production also continues to decrease. Furthermore, as clean energy continues to establish itself, it could lead to a more decentralized power grid. This has the potential to completely revolutionize current utility models. Investors are therefore preparing for the transitions that appear to be forthcoming. 

It will be important for investors to monitor major investment factors in the continued growth and establishment of renewable energy. These factors are important, as they highlight not only investment trends, but also corresponding legal issues such as governance, disclosure, and fiduciary duties. 

Cost of Renewable Energy Technologies Continues to Diminish

A new report by Bloomberg projects that 60 percent of power generators will use zero-emission sources by the year 2040. Much of this increase can be attributed to the continually falling prices of wind and solar energy. 

In particular, the report estimates that wind and solar sources will become cheaper than existing coal and gas generation by the year 2027. This will represent a tipping point which will result in more rapid renewables development. Combined with a more favorable shift toward renewable energy in political spheres, this development points toward higher projected investment levels in renewable energy stocks. 

Green Funds and Bonds to Receive Renewed Guidance

Green bonds are bonds that are created specifically for the purpose of funding environmentally beneficial projects. At the moment, reports compiled by the Climate Bonds Initiative conclude that the market for green bonds is substantially underestimated. Part of the issue here is that a majority of investment projects fail to receive green bond classification, simply because there are no official standards to determine what is “green” in the financial industry. 

As a result, the Climate Bonds Initiative (in conjunction with the International Capital Market Association) is continually refining the Green Bond Principles (GBP). These are a set of voluntary process guidelines that promote transparency and disclosure in the process of issuing a Green Bond. The Principles provide guidance for issuers, investors, and underwriters to move towards standard disclosures in transactions. 

Across the board, such voluntary guidelines are proving to be very helpful in filling the reporting void for companies and investors. This is very similar to the situation with corporate ESG reporting, which will also rely on voluntary guidelines for information mining. We are also seeing that conferences and summits are proving very useful in stimulating global discussion regarding renewable energy investment policies and other issues.

Other Concerns: Fracking, Recent Drops in Investment 

The output of U.S. oil has nearly doubled over the past decade, largely due to fracking. However, fracking has its share of environmental concerns, and the surge in American crude oil due to fracking is a main contributor to ongoing global oil glut. These two concerns also result in additional legal disputes and claims related to environmental violations and corresponding shareholder losses. Investors are carefully examining the complex set of circumstances surrounding the fracking industry. 

Lastly, while prospects look very favorable for renewable energy investing in the long run, recent numbers actually indicate a slight dip in energy investment in 2016 so far despite the piqued interest from 2015. Experts believe that the current dip in investment is somewhat of an anomaly. For instance, much of the lower investment in 2016 can be attributed to China, which has been associated with weaker electricity demand.

Also, the figures could be affected by the 2015 Paris Agreement, which created spikes in green energy investment figures across the board globally; that is, investment may appear to be weaker in comparison with 2015 figures, but they still represent significant bumps. Overall, the general projections for renewable energy investments in the long run point to decisively upward trends. 

In summary, renewable energy investment is subject a whole host of factors, and the landscape is highly dynamic on a month-to-month basis. Going in the other direction, investment will also be influencing the rate at which renewable energy continues to develop — as investors pour resources into technology development, it will serve as a catalyst for further market changes. 

Energy investment is a highly nuanced and dynamic field. If you have any questions, concerns, or inquiries regarding this crucial topic of discussion, contact us today at Kessler Topaz. Our team of attorneys is committed to staying at the forefront of critical global issues, and we are dedicated to protecting shareholder rights and interests around the world.