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What Are the Best Tips for Investing in Green Energy?

John Lister
John Lister

Investing in green energy is an attractive prospect to many people because not only is it appealing on ethical grounds, there is a common belief that the sector will grow in the future as oil becomes scarcer, environmental concerns grow, and renewable energy lowers costs. Investors need to take the usual precautions when making any investment, but should also pay particular attention to political developments. It may also be worth exploring nuclear energy and carbon credits.

When researching options for investing in green energy, the investor should be aware that the sector is relatively new and is known by many different names. Other names that could be used include alternative energy, sustainable energy and renewable energy. It is also sometimes incorporated into ethical investing, a category that covers a wide range of businesses but excludes some industries such as tobacco or arms production.

A house with solar panels.
A house with solar panels.

The appeal of investing in green energy shouldn't deter the investor from taking basic safety precautions. As with any investment past performance should be researched as well as the level of volatility, which is how widely prices have swung back and forth. The fundamentals of the business should be researched, for example ensuring that the investment price is a realistic reflection of the actual stability and profitability of the company. Transaction costs involved in any investment is an important consideration, along with the liquidity of the market, which determines how easily the investment can be cashed in if needed.

Investors should check the latest legal and political situation in a country before investing in green energy firms. Policies can change, particularly after a change of government, and this can have a dramatic effect on businesses. For example, some countries currently offer feed-in tariffs, meaning that customers who generate electricity at home through methods such as solar panels can receive cash from the government for any excess electricity they produce. These schemes are a major boost for businesses producing and installing the relevant equipment, but if the governments were to reduce or abolish these payments, the businesses would likely suffer.

Nuclear energy may be considered as an investment. Advisers may not always include it in a range of suggestions as there are debates about its safety and the environmental consequences of dealing with waste. Despite this, many of the reasons why investing in green energy is becoming popular may also apply to nuclear companies.

One more complicated way of investing in green energy is through carbon credits. These are used in some countries and involve companies being given permission to create a certain amount of carbon dioxide emissions each year. Companies who don't use all of their "credits" can sell them to other firms that want to exceed their starting levels. This creates a market for such credits with the price floating with demand and supply. In some cases, private investors may be able to trade these credits in the same way as a stock or other asset.

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    • A house with solar panels.
      By: il-fede
      A house with solar panels.