At a glance:

  • Environmental Benefits: Clean energy significantly reduces carbon dioxide emissions compared to fossil fuels, offering a better alternative for the environment.
  • Government Initiatives: Governments, particularly in Europe, are increasing renewable energy targets, aiming for 32% of energy from renewable sources by 2030.
  • Economic Advantage: Wind and solar power are cheaper to generate than fossil fuels, driving investment and providing energy security with enhanced government support.
  • Investment Opportunities: Legislation like the US Inflation Reduction Act boosts clean energy investments, offering substantial incentives and positioning the sector for significant long-term growth.

It is clear that clean energy — which eliminates or substantially reduces carbon dioxide emissions — is a better alternative for the environment than fossil fuels.

Governments are taking action to reduce carbon dioxide emissions and clean energy technology is advancing rapidly. The European Commission wants 32% of all energy production to be renewable by 2030 among its members. In 2017 it was just 18%. In Europe, the share of energy consumed in the EU during 2022 generated from renewable sources was 23%. This increased from 21.9% in 2021.

Today a greater share of European households and businesses get their power from wind and solar than coal. Energy generated from wind and solar power is cheaper to generate than fossil fuels (IRENA, Renewable Power Generation Costs in 2020), even without subsidies. Meeting EU emissions-cutting goals will require an even faster expansion of renewable sources, requiring a power sector based 70% on renewables by 2030. More reliable and affordable than ever, Investment Managers believe clean energy’s potential to provide energy security, combined with enhanced government support, may spur significant opportunities for investors. While the environment for clean energy was already poised for success, the Inflation Reduction Act in the US has underscored this tipping point. The Clean Energy and Inflation Reduction Act is a landmark U.S. legislation aimed at combatting climate change by investing heavily in renewable energy and reducing greenhouse gas emissions. It includes substantial incentives for clean energy technologies, such as solar and wind power, electric vehicles, and energy-efficient infrastructure, while also introducing measures to lower healthcare costs and reduce the federal deficit. Investors should be ready for further focus on bolstering global clean energy manufacturing, decarbonisation, and incentives for consumers to make energy efficient choices.

In the ever-evolving landscape of the global economy, the renewable energy sector stands at the forefront of innovation and sustainability. Over the past decade, alternative energy funds have emerged as a very attractive option for investors seeking long-term growth in an asset class often described as embryonic, attracting investors keen on aligning their portfolios with environmentally conscious practices. However, the sector has not been immune to economic variables with the surge in interest rates in 2022 casting a shadow over its growth trajectory. This sector tends to be Interest Rate sensitive.

As central banks worldwide embarked on a path of tightening monetary policy, the alternative energy sector has experienced its share of challenges. Rising interest rates have introduced headwinds, dampening the appeal of these funds for investors who had flocked to them during times of accommodative monetary policies. Yet, amidst the concerns and uncertainties the current environment, characterised by a more accommodative Interest Rate environment we anticipate a shift in the appeal that could re-instate this sector as a very attractive investment option.

Within Insight Private Clients, we have a number of investment options which provide exposure to this sector. Please feel free to reach out to us to explore how these investments can benefit your portfolio.