Amidst traditional energy sources hitting their fag end, renewable energy space seems to be stepping in and making the best of the available opportunity. Economies around the world are consciously factoring in that fossil reserves may soon run out. This is why the renewable energy theme is receiving a lot of traction.
Economies are pumping tons of subsidies into the renewable energy space with the aim of offsetting their energy needs from fossils.
Even though there’s been enough talk about renewable energy in the last couple of decades, investments in the renewable energy theme have lacked luster. High costs of production in the case of renewable energy could be attributed as the biggest reason for this. However, a positive attitude from the governments towards their zero-emissions policies, big players entering the renewable energy space, improving technology, and readily available financing have brought a notable turnaround.
India, too, is taking some giant leaps in developing viable, clean energy resources. Between 2014 and 2021, the renewable energy capacity has increased 2.5-fold in India. In the Union Budget 2022-23, the government showed aggressive intent to manufacture solar modules. In line, the government allocated Rs. 19,500 crore (US$ 2.57 billion) for a PLI scheme to implement the same.
Considering the resilient growth of the renewable energy sector in 2021 and the fact that there’s an ever-increasing demand for switching to clean and green resources, the renewable energy sector may be poised for unprecedented growth in the years to come.
As investors, you would not want to miss out on the early-mover advantage. While the renewable sector has amassed a fair share of attention from market participants, retail participation is still nascent compared with other established sectors.
Before investing, it is essential to analyse how a particular share is performing and its growth potential. To learn more about this, read our A-Z guide on analyzing stock fundamentals on the Teji Mandi blog.
However, it is safe to say that investing in renewable energy can be a great move. Let us analyse why.
Here’s why renewable energy is a good investment bet:
Prima facie, it’s quite evident that renewable energy will replace the majority of the world’s energy supply in the coming decades; it’s time we delve in deeper to understand how your investments in renewable energy can bring you positive returns.
Renewable energy is the fuel of the future:
Led by solar energy, renewable energy will account for about 30% of the world’s electricity supply by 2024. Moreover, the cost of solar systems is going down every year, and the International Energy Agency predicts solar installation costs will fall 15-35% by 2024. This will likely give a good push to retail usage of solar energy, which currently accounts for 60% of the total produced renewable energy but demand isn’t matching in line due to high implementation costs.
While issues like global warming, health effects of using fossil fuels and the burn out of fossil reserves are rising with every passing day, a 50% expansion in the installed capacity of renewable energy in the next 4-5 years would certainly ease things.
The renewable energy case for India is far more appealing than most European countries. Since India receives a fairly decent amount of sunshine during the year, there won’t be a problem switching to solar energy, provided enough installed capacity is available, and costs are controlled. A great case study here is the implementation of solar power at the Cochin International Airport in Kerala. It is the world’s first to completely operate on solar power.
The only thing that might hold back investors is the limited supply chain in the renewable energy space and the lack of history since the companies are relatively young. Nevertheless, the promise the renewable energy sector holds could be seen as a potential long-term bet.
While Indian investors sat on the sidelines, pondering over the future of renewable energy in India, foreign investors predicted the boom in 2000. Between April 2000 and December 2021, the renewable energy sector received an FDI inflow of $11.21 billion!
The government is extremely bullish on the sector’s outlook as R K Singh, the Union Minister for Power and New Renewable Energy, claimed that India would cross US$15 billion investment in 2022.
The government is launching different projects in phase-bound manner in electric vehicles, green hydrogen, and manufacturing of solar equipment, and is looking to achieve its target of installing 175 GW renewable energy capacity.
Renewable energy will always have the edge over fossil fuels as it is replenishable. While fossil reserves are fast depleting, renewable energy is inexhaustible.
A study by Bloomberg New Energy Finance predicts renewable energy to become a $1.5 trillion industry by 2025, growing at an annual rate of 6.1%. Talking about rising investments, the study projects investments worth $5.1 trillion to be flushed into the renewable energy industry by 2030.
The market share of renewable energy will only increase because we are already topping our maximum fossil reserves, and there’s no way it can be increased any further. However, the case with renewable energy is completely different; there’s no upper cap to it.
Even though fossils are still the mainstream source of power, the market share is declining, and it is predicted to come down to 46% by 2030. With rising climate concerns and doubts about the future availability of fossils, renewable energy is considered a viable alternative.
Impressive returns:
In India, the renewable energy theme has been on song in the last couple of years or so.
Though there’s not a wide range of listed companies in this sector, companies like Adani Green Energy Ltd, Borosil Renewables Ltd, Websol Energy System Ltd, etc., have put up quite a show.
Investors who want to access the returns delivered by the renewable energy sector should gauge the performance of these companies. Adani Green Energy Ltd, the only listed company that has installed wind, solar, and hybrid power production capacity, has yielded over 100% return on investment since 2021! Borosil Renewables Ltd, another company that fulfils around 40% needs of solar glass in India, also has about 135% returns since 2021. Websol Energy System Ltd, one of the largest solar cell manufacturers, also yielded close to 100% returns since 2021. The sector also had a dark horse in the name of Zodiac Energy Ltd; the company has a unique business model of providing standout solar energy solutions. The company gave a whopping 1300% returns since 2021 when we consider the 52-week highs of the company!
Returns in the renewable energy sector have been overwhelming. While it’s hard to predict if the dream run of renewable energy companies will continue at the same pace in terms of returns, the prospect looks promising in terms of performance and growth.
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Technological improvements:
Renewable energy sources are known to all, so locating them has never been a concern. The concern is always around the high costs of production and distribution. To put things in perspective, here is the roadblock that the Kerala power project we brought up earlier this blog faces. According to news reports, “the relatively small state of Kerala is quickly running out of land, especially to accommodate the space-intensive solar technology. Installing a solar PV to generate a single kilowatt (kW) requires 10 square meters of land. Upcoming large-scale projects are instead looking at floating, dam-top and canal-top installations, in an attempt to utilize all available space.”
However, the production costs have been trimmed down over the years due to technological advancements. The cost of setting up solar plants has come down to an affordable range, and wind turbines generate more energy than they ever did. The size of solar cells are shrinking without compromising on their capacity, in fact, we look at higher capacity of solar cells now.
Massive leaps are taken in energy storage, which could be the potential flag bearer of the renewable energy sector. Since renewable energy generation is uneven, storage will help scale its usage. More and more companies are looking to develop their power storage capacities by installing huge batteries and virtual power plants.
Conclusion:
The shift to renewable energy is inevitable; either we gradually shift on our own, or the blackout of fossil reserves will force us into it. Investments in renewable energy will shape the sector’s future and help reduce carbon emissions in the environment. Government incentives, credits, subsidies, policies, and regulations favour and put renewable energy companies over traditional power generation companies.
While the upside for growth of the sector looks promising, and your investments in renewable energy might give you multifold returns in just a few years, the same doesn’t come without any risks. The sector is buoyed by foreign investments and a range of amenities extended by the government. It would remain interesting to see how the sector performs in case of the scenario changes, if it changes at all.
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