You wouldn’t know it by reading the headlines, but the renewable energy sector has become a powerhouse investment haven for companies looking for lucrative, long-term investments. Although wind and solar projects often require huge capital investments initially, they are cheap to maintain, and offer stable, low double-digit rate of returns.
Take Warren Buffett, for instance.
His company MidAmerican Energy Holdings has invested big dollars into solar projects across the U.S. We’re talking a $2 billion solar farm purchase in San Luis Obispo County and a 49% stake in NRG’s $1.8 billion Agua Caliente solar project in Arizona.
And when Warren Buffett makes investments of this magnitude, other investors pay attention.
The world’s biggest search engine, Google, has also made investments in clean energy to the tune of nearly $1 billion. And General Electric recently hit the $1.4 billion mark for its solar power portfolio.
So despite the high-profile bankruptcy of solar panel manufacturer Solyndra which cast a dark cloud over the clean-tech sector, investment dollars are still flowing into renewables and the solar industry is still going strong.
The key to such high investment returns in the U.S. is in Renewable Portfolio Standards (RPS), which 29 states and the District of Columbia have already embraced. Basically, an RPS stipulates that a certain percentage of a state’s electricity mix must come from renewable power.
As a result, many of the utilities in these states have initiated long-term, guaranteed-rate contracts with various renewable power companies. Investors with deep pockets (such as Warren Buffett or Google) can therefore provide much needed capital to expensive solar projects, while locking in future gains over the duration of the contract (i.e. 25 years).
What are your thoughts on the renewable energy sector? Do you think clean energy will prove to be a solid investment for many?
Image CC licensed by Bilfinger Berger SE: solar thermal power station