Is a Cleantech Investment Right for Me?

A cleantech investment is considered socially responsible because it promotes alternative sources of energy that are renewable and reusable. These companies, including solar, wind energy, and ethanol producers, by nature depend on the price of fossil fuels, such as crude oil and natural gas, to remain high in order to be considered compelling alternatives. Cleantech investments have historically proven to be risky bets. Whether or not a cleantech investment is right for an investor, however, depends on an investor profile, which is the risk and reward he or she is looking to achieve.

Solar companies make the panels that generate power. In many aspects, this niche sector is considered young and stocks tend to be extremely volatile. Investors in this group tend to actively trade the stocks rather than remain invested for a long period of time because of the price swings. Solar stocks tend to be rewarded in regions where the government provides subsidies for these companies to grow, such as in China.

Ethanol companies produce an alternative to crude oil. Corn-based ethanol is considered a biofuel, and coupled with natural gas creates a cleaner source of gasoline. A group of ethanol companies entered the publicly traded markets in 2006 while oil prices were high and several well-known investors showed confidence in the sector by investing millions. By 2008, ethanol companies were bleeding cash and several were forced to file for bankruptcy as the price of corn soared and ethanol prices dropped. Investors lost millions of dollars.

Wind energy, a renewable power source, is another cleantech investment. This energy source has the potential to propel an entire nation towards energy independence. Multi-billion dollar wind farm projects have been abandoned because of commodity-price volatility, however. Another obstacle for wind farm companies is the turbines they manufacture are considered to be eye sores in some neighborhoods, and this resistance slows down industry growth. All of this plays into stock performance and someone interested in this cleantech investment must be able to withstand the highs and lows.

During bull runs in energy prices, that is periods in which crude oil and natural gas prices are rising, alternative energy investments including cleantech stocks tend to do well. Unfortunately, energy prices can be volatile, which means they can endure dramatic swings both to the upside and downside. This has a direct impact on cleantech investments, and investors need to be able to patiently wait through market cycles if they intend to make a profit.