DR.CHENJIAZI ZHONG

Alternative and renewable energy assets currently only represent a small portion of the markets, but it is growing quickly.

Solar Power 

Solar energy is the most environmentally friendly energy source, with no air or water emissions, or waste generation. Solar power is durable and it requires little maintenance. Also, solar energy is a great solution for peak-hour energy since this typically happens during sunlight. The two main approaches to generate energy from solar power are photovoltaic (PV) and concentrated solar power (CSP).

However, solar energy is costly, so it relies heavily on government subsidies, although with continued support, the costs are likely to fall. Secondly, the natural gas supply affects the solar power industry as a whole; with lower prices, natural gas is an attractive alternative for electricity generation. Furthermore, investors had concerns about the application of solar power, as sunlight varies due to weather and time; over the past decade, solar power technologies have been designed to deal with this fact.

Wind Power

Wind power has gained popularity due to: 1) its nature of cost-effectiveness compared to fossil fuels, 2) little maintenance requirements from windfarms, 3) can last for decades, and 4) no carbon emissions.

There are several problems with wind power. Firstly, wind power needs to be supplemented by other sources because wind is inconsistent. In addition, it takes up a great deal of land to be effective – a turbine that generates 2.5 megawatts (MW) can easily take up 50 yards and weigh 10 tons. Above all, wind turbines have environmental issues – they produce tremendous noise and kill birds and other animal life.

Biomass

Biomass consists of organic matter, such as plants, wood, animal waste, and rotting garbage. Two key biomass fuels are ethanol and biodiesel. Biomass absorbs sun rays and stores energy, so in this sense, it is possible to turn biomass into energy with the adoption of specialized refiners. As long as it is processed appropriately, biomass energy should not have serious negative impact on environment. The carbon emissions from biomass are reabsorbed by trees and plants (carbon-neutral).

Biomass is far from a perfect alternative fuel, because it is expensive, and the industry relies heavily on government subsidies.

Ethanol

Ethanol requires a great amount of energy, water, and labor to create; ethanol is corn-based, which is one of the causes for the higher corn prices. The U.S. federal government provides various tax credits and tariffs to encourage production and ward off cheaper imports, such as from Brazil.

Geothermal Energy

Compared with solar and wind power, geothermal energy has many advantages:

1. The geothermal industry is mature, so technology risk is low.
2. Geothermal energy is 100% renewable, and it has no environmental impact.
3. With the government incentives and tax credits, geothermal plants are not capital intensive.
4. Geothermal plants do not take much space, and they have lifespans of several decades, with little ongoing maintenance requirements.
5. Geothermal energy does not rely on weather.

Geothermal energy is based on the molten magma in the earth’s inner mantle, so the temperatures are about 8,000 degrees Fahrenheit at the core. The issue is that to find a good source for geothermal energy is fairly difficult, although there are some areas with promising sources, particularly those with volcanic activities, like the Philippines, Indonesia, and parts of Africa.

Alternative & Renewable Energy Fund

Alternative and renewable energy fund is socially responsible, which places an emphasis on investments that have a positive impact on the environment. This investment space gains significant benefits from increasing activity in the green energy and green technology sectors. By investing in alternative and renewable energy, we not only spur economic development, but also help develop new and innovative technology, reduce dependence on foreign oil, and address environmental concerns.

The popularity of alternative and renewable energy/technology sectors is driven by rising global demand for energy with only a limited resource of fossil fuels. The International Energy Agency (IEA) has predicted that world energy consumption is set to rise 53% from now to 2030. Beyond that, governments around the world have been encouraging investments in alternative energy through various incentive schemes, as they are increasingly concerned about climate change and energy security.

In the investment universe construction process, investment managers of alternative and renewable energy funds add a separate screen for the companies that engaged in the space.

In addition to the types of risks related to conventional investments, the principal risks of alternative and renewable energy funds include:

1. Price of alternative energy declines due to many other factors, including international political developments, production and distribution policies of oil-producing countries, especially the OPEC members.
2. Alternative and renewable energy fund has difficulty selling small- and mid-cap and emerging market stocks due to lower liquidity and higher volatility.
3. Political, social, currency exchange rate fluctuations, and economic instability within foreign countries cause the value of the fund’s foreign investments to decline; the currencies that dominate foreign holdings of the fund may decline in value against the U.S. dollar.

Reference

Tom Taulli (2011)