BERLIN – Many investors look beyond the bottom line in choosing their stocks. They try to put their money where it will support clean energy and reflect their concern for the environment — while still turning a profit. But until recently, green-minded investors who wanted to add energy stocks to their portfolios often had to choose between ideals and performance. However, wind, solar and biofuel technologies, among others, are gaining momentum as various market forces coalesce to boost the long-term viability of alternative fuels.
“The entire sector is up on average 60 percent from the start of 2007,” said Asari Efiong, Vice President of Renewable Energy Research for Merrill Lynch, who notes that this strong performance came even amid concerns of a U.S. recession and global slowdown. “The theme has gone mainstream this year. Investors really can’t afford not to have some exposure to the sector.”
The regulatory and market changes over the past 10 years suggest that the trend will continue. Where oil was once selling for $35 a barrel in 2004 and 2005, it recently exceeded $100 for the first time — a significant incentive for companies to hunt for other sources of energy. Awareness about carbon emissions and the environment has also risen dramatically among consumers, businesses and governments, more than two dozen of whom now have renewable portfolio standards or policies that require companies selling electricity to include a certain percentage of renewable energy in their mix. And large oil companies are required to purchase a certain percentage of biofuel, thanks to energy legislation enacted in 2005.
Cost will play a major role in the future success of alternative energy. The formerly exorbitant expenses associated with harnessing the power of wind or converting sunlight into wattage are coming down, even as the cost of fossil fuel rises. Solar panels, for example, are a one-time expense for companies, compared with the far more unpredictable cost of traditional fuel. And wind power, one of the more mature sources of renewable energy, is even more economically competitive than solar, thanks to tax credits offered to any company that owns and operates a wind plant.
As part of an overall portfolio strategy, renewable energy investments should be thought of as a longer-term play, since it will likely take another couple of decades for the industry to mature. And they’re not meant to provide income.
Talk to your Financial Advisor about whether alternative energy investments can make sense as a socially responsible part of your portfolio.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)