Is Via Renewables A Good Investment?

Renewable energy sources such as solar, wind, geothermal, and hydropower have seen rapid growth and adoption over the past decade. This is mainly driven by concerns over climate change and energy security, as well as technological improvements that have reduced costs. Whereas renewables accounted for around 9% of US electricity generation in 2009, by 2019 that figure had climbed to around 18%.

Globally, renewables now supply over 26% of electricity generation. Investments in clean energy have grown dramatically as well, reaching over $300 billion in 2019 alone. This growth is expected to continue as more countries aim to transition towards low-carbon energy sources and reduce reliance on fossil fuels. The International Energy Agency (IEA) projects renewables will supply over 30% of electricity by 2024.

Costs of Renewables

Renewable energy technologies require significant upfront capital costs. Wind turbines, solar panels, and other equipment can be expensive to manufacture and install. However, once installed, renewable sources have very low operational costs since they do not require any fuel. The main ongoing costs are maintenance and repairs.

The costs of renewable energy technologies have fallen dramatically in recent years. For example, the cost of solar panels has declined over 90% in the last decade due to improvements in manufacturing and economies of scale. The levelized cost of electricity from new solar and wind projects is now competitive with or even lower than fossil fuels in many markets.

Further cost reductions are expected as production expands, technologies improve, and developers gain experience. Renewables are projected to be the cheapest source of new electricity generation in most markets within the next few years.

Government Incentives

Governments at the federal, state, and local levels offer various incentives to encourage renewable energy investment. These incentives help offset installation costs and provide direct financial benefits. Some of the main government incentives for renewables include:

Tax credits: The federal government provides an investment tax credit (ITC) that allows you to deduct 26% of the cost of installing a residential solar energy system from your federal taxes. This credit applies to both home solar systems and solar panels. Many states offer additional solar tax credits and property tax exemptions.

Grants: Government grant programs provide funding to help cover the upfront costs of renewable energy systems. For example, the Rural Energy for America Program (REAP) offers grants for farms and small businesses in rural areas to install wind, solar, anaerobic digesters, and other projects.

Other incentives: Some utilities offer rebates and incentives for installing renewable energy systems. Local governments may offer special low-interest loans, zoning allowances, fee waivers, and other incentives for renewable projects.

Economic Benefits

Investing in renewable energy can provide significant boosts to the local and national economy. Renewable energy projects create jobs in construction, manufacturing, installation, operation, and maintenance. These jobs tend to pay well and cannot be outsourced. Constructing wind farms, solar fields, and other projects takes substantial manpower. Once built, renewable sources require technicians and engineers to operate and service the infrastructure, providing ongoing local employment.

Investing in renewables circulates money back into the local economy. Rather than sending money out of the community to purchase fossil fuels, locally generated renewable electricity keeps energy dollars local. Owners of renewable facilities pay property taxes and other local fees. Workers spend their paychecks at local businesses. This boosts the entire regional economy.

Expanding renewable energy enhances energy independence and national security. The more energy generated domestically from renewable sources, the less a nation must rely on imported fossil fuels. This reduces energy supply vulnerabilities and exposures to global price shocks. With their own vibrant renewable sector, countries gain greater energy self-sufficiency and insulation from international energy market instability.

Environmental Benefits

Investing in renewable energy can provide significant environmental benefits compared to fossil fuel energy sources. Renewable energy produces little to no greenhouse gas emissions, which reduces air pollution and benefits public health.

According to the U.S. Environmental Protection Agency, the burning of fossil fuels like coal and gas accounts for over 75% of greenhouse gas emissions. These emissions contribute to climate change and poor air quality that harms human health.

In contrast, most renewable energy sources like solar, wind, and hydropower emit little to no greenhouse gases during operation. Widespread adoption of renewables can drastically reduce emissions from the electricity sector.

Reducing air pollution from fossil fuel energy has measurable public health benefits. Studies have found that areas with cleaner air see reductions in respiratory and cardiovascular diseases. Children especially benefit from cleaner air.

Investing in renewable energy accelerates the transition away from polluting fossil fuels. Doing so not only benefits the environment, but protects public health as well.

Risks and Drawbacks

Though renewable energy investment offers many potential benefits, there are some notable risks and drawbacks to consider.

One key challenge is the intermittent nature of renewable energy sources like wind and solar. Since the wind doesn’t always blow and the sun doesn’t always shine, additional solutions like energy storage are often needed to smooth out supply. This intermittency can make integration with the electric grid more complex.

There are also typically higher upfront capital costs associated with renewable energy projects compared to fossil fuel plants. While renewable energy systems have very low operating costs over the long term, the initial investment required is an economic barrier for many investors and utilities.

Integrating a high volume of variable renewable energy into the electric grid is also technically complex. Significant upgrades and changes to grid management and operations may be needed to handle two-way power flows and maintain reliability.

Investment Returns

Investment in renewable energy can offer good returns compared to fossil fuels or other assets. The exact returns depend on the technology, location, incentives, and electricity prices.

Solar PV systems for homes generally have payback periods of 6-8 years. After this time, the system earns effectively ‘free’ electricity. Paybacks for commercial solar PV are often only 3-5 years. Onshore wind farms can achieve payback in only 5 years before producing decades of profitable power.

These returns beat investing in coal or gas plants. Fossil fuel plants have payback periods of 15-20 years, with ongoing fuel costs and carbon pricing risks. Renewables avoid fuel costs while benefitting from government incentives. Once built, the ‘fuel’ of sun and wind is free.

However, hydropower and geothermal investments can have longer payback periods of 10-25 years. Offshore wind is also capital intensive. Investors should compare projects individually.

Overall, renewables represent profitable infrastructure investments. Falling technology costs and rising electricity prices should improve returns further. Tax incentives and carbon pricing also boost the investment case. While risks exist, renewables appear an attractive option versus fossil fuel plants.

Future Outlook

The future of renewable energy investments looks promising given expected policy support, technology improvements, and cost projections.

Governments around the world are likely to continue enacting policies that encourage renewable energy adoption, such as clean energy mandates, carbon pricing programs, and renewable portfolio standards. These policies will provide long-term certainty for investors and ensure strong demand.

Technologies like solar panels, wind turbines, and battery storage are also expected to become more efficient and cost-effective. Improvements in renewable energy technologies will lead to higher returns on investments as the same amount of capital yields greater energy generation.

Most forecasts suggest the costs of renewables will continue declining over the next decade, while fossil fuel prices remain volatile. As renewable energy costs fall below fossil fuel energy costs, investing in renewables will provide very attractive returns compared to conventional energy sources.

With supportive government policies, advancing technologies, and declining costs, the future outlook for investing in renewable energy remains bright. Renewables represent a sound long-term investment for generating stable returns and contributing to a clean energy future.

Conclusion

When weighing the pros and cons of investing in renewable energy, there are strong arguments on both sides. On the plus side, renewable energy has lower long-term costs than fossil fuels, receives government incentives in many regions, provides environmental benefits, and has strong future growth potential as costs continue to fall. The main downsides are higher upfront costs, intermittency issues for solar and wind, and geographic limitations for some renewables.

Overall, for investors with long time horizons, investing in renewable energy appears to be a wise decision. Though costs are currently higher, they are likely to decline over time as technology improves. Government policies also seem to favor continued expansion of renewables. And perhaps most importantly, renewable energy investments allow investors to generate returns while also supporting the transition to a cleaner energy system.

Key Takeaways

• Renewable energy investments can provide good long-term returns, but have higher upfront costs.
• Government tax credits and incentives can offset some of the initial investment required for renewable energy systems.
• Investing in renewable energy promotes sustainability and reduces your carbon footprint.
• Performance of renewable systems depends on installation quality and local weather conditions.
• Consult experts to evaluate if renewable energy investment aligns with your financial goals and risk tolerance.