The Skills you Need to Invest in the Clean Energy Market

Do you want to use your investment capital to encourage the development of clean energy? If you care about the environment, then clean energy investing might appeal to you. Clean energy is one of the leading sub-sectors for investors who want to help encourage green fuels which don't harm the environment. 

We can't tell you which clean energy ETFs or stocks to invest in, or which ones will grow faster than others. But we can explain the fundamentals of the clean energy market, so that you can make a decision about whether you want to invest your money and how much to invest. 

What is Clean Energy?

Clean energy means that the energy production doesn't cause any emissions or pollution. It's usually the same as green energy, which means power production that doesn't harm the environment. Both terms describe energy from renewable sources, unlike fossil fuels which come from oil, gas, and coal deposits that will one day run out. Although oil and gas companies are working to cut emissions and pollution, there's no way at the moment to make them clean or green. 

Solar power, wind power, nuclear energy, and green hydrogen fuel are all types of clean energy. Green hydrogen is the least-known, but clean energy advocates increasingly believe that it could replace fossil fuels. Hydrogen is abundantly available across the planet, typically as a compound with other elements. Hydrogen fuel companies use electrolysis to separate and harvest the hydrogen molecules, and then store them in pressurized containers until they transfer them to a fuel cell where the energy can be released as fuel. 

When the electricity for electrolysis comes from renewable energy sources, the hydrogen fuel is called "green hydrogen." Green hydrogen production generates little to no carbon emissions and the only waste product is water. Unlike other clean energy types, hydrogen fuel is energy-dense, so it can collect excess energy and distribute it at times and places of peak demand. 

Why is this a Good Time to Consider Investing in Clean Energy?

Public support for clean energy is very high. People are seeing the damage that climate change causes, with natural disasters and extreme weather conditions killing millions of people every year. According to the World Health Organization, air pollution causes about 100,000 premature adult deaths each year in the European region alone. This is driving the pressure for greener, more environmentally-friendly power options. 

Consumers are also suffering through more power outages. The US saw major outages (affecting more than 50,000 homes or businesses) grow ten times from the mid-1980s to 2012, the total average annual electric power service interruption nearly doubled from 2013 to 2018 to nearly 6 hours (Japan’s consumers have an average of 4 minutes per year.) Consumers want reliable, consistent power that doesn't crash when demand surges or the temperature rises. Alternative clean energy microgrids can keep essential services like water treatment, medical devices, and emergency heating running even when the traditional grid fails. 

Many governments, cities, and corporations have pledged to lower carbon emissions and become carbon neutral, like the 87 countries who signed the Paris climate agreement. Although there are a lot of initiatives to reduce carbon emissions and offset them by planting trees, analysts believe that increasing clean energy production is the only way to meet these commitments. 

Around the world, governments are subsidizing the construction of clean energy infrastructure and rollout of clean energy networks, and offering tax breaks and other incentives for clean energy production and use. In the US, the Biden administration pledged to invest $400 billion in clean energy development over the next 10 years. Green energy strategies have recently been announced by the UK, the EU, Australia, Japan, China, and Korea. 

Ongoing development has also steadily lowered the cost of clean energy production, making it more affordable and bringing it closer to commercial viability. In 2019, the cost of solar energy fell by 82% and wind-powered energy by 50%, while hydrogen electrolyzers have fallen by up to 50% in price since 2015 and are expected to drop by another 40-60% by 2030. Although a record 184 gigawatts of renewable non-hydro power generation worldwide was added in 2019, the costs rose by only 1%. Meanwhile, clean energy use cases are rising and its actual utilization on the ground is increasing. There are now millions of electric vehicles (EVs), and thousands of fuel-cell electric vehicles (FCEVs), which run on hydrogen fuel, on the roads worldwide. Clean energy like hydrogen is also being used in microgrids, residential heating, aerospace, and hopefully soon as industrial fuel and feedstock.

Top investors see the potential of clean energy funds. Global investors managing close to $7 trillion of assets announced that they expect to raise their investment in renewable energy infrastructure by almost 200% over the next 5 years and 250% in the next 10 years, to around $742.5 billion. At the same time, they are lowering their investments in traditional fossil fuels. 

What are the Best Ways to Invest in Clean Energy?

That's up to you. If you like to keep control of your investing, you can pick out the leading green energy stocks and build your own portfolio. You may want to diversify between different clean energy sub-sectors, as well as companies involved in different parts of the industry, like those developing fuel cell technology, those building infrastructure, those producing the power itself, etc. 

Alternatively, you could invest in a clean energy ETF, either one that covers the entire clean energy sector or one that focuses on a subsector like . This way, your investment is diversified across a number of companies which helps mitigate the single-stock risk, but you still get exposure to the future growth opportunity in this disruptive and potentially lucrative sector. 

Whichever approach you choose, remember that clean energy is a long-term investment, in our opinion. Although the sector performed strongly in 2020, we believe it's not the place for fast, short-term gains. Instead, we expect the clean energy market to expand and grow steadily over the next decade and beyond. 

Click here for the HDRO Fund prospectus.

Distributed by Foreside Fund Services, LLC.

Investing involves risk. Principal loss is possible. As an ETF, HDRO (the “Fund”) may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund is not actively managed and would not sell a security due to current or projected under performance unless that security is removed from the Index or is required upon a reconstitution of the Index. A portfolio concentrated in a single industry or country, may be subject to a higher degree of risk. Specifically, the Index (and as a result, the Fund) is expected to be concentrated in hydrogen and fuel cell companies. Such companies may depend largely on the availability of hydrogen gas, certain third-party key suppliers for components in their products, and a small number of customers for a significant portion of their business. The Fund is considered to be non-diversified, so it may invest more of its assets in the securities of a single issuer or a smaller number of issuers. Investments in foreign securities involve certain risks including risk of loss due to foreign currency fluctuations or to political or economic instability. This risk is magnified in emerging markets. Small and mid-cap companies are subject to greater and more unpredictable price changes than securities of large-cap companies.

The Fund is new with a limited operating history.

Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

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