Is it a good option to invest in renewable energy for a retirement fund?

Investing money in the financial markets, either independently or through an SIPP style pension plan, can be a very good way to try and boost the value of your pension […]

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By george marshall

Investing money in the financial markets, either independently or through an SIPP style pension plan, can be a very good way to try and boost the value of your pension fund. Of course, with an SIPP or with private investment you need to decide on the best long term investments yourself, so you know your money is going to have the best chance to grow.

Renewable energy as an investment

One area a lot of people are interested in as investors is green energy. There are several reasons why this is appealing. Firstly, many people genuinely care about issues like climate change and want to support businesses that are working to improve access to renewable energy and develop the technology in the sector. Secondly, it is a field where growth and technological advancements are very likely over the course of time, so seems well suited to longer term investment strategies like pension plans.

Things to consider when investing in renewable energy companies

Of course, the fact that renewable energy is on the rise and likely to replace current traditional fuels over the coming years and decades does not guarantee success for any one green energy focused company. If you want to focus your investment on renewable energy, be sure to do your research into how the companies you choose to invest in operate and what their near term projections are.

Some green companies are less profit driven than others, which you may think of as a good thing in general but it isn’t necessarily a good thing when it comes to investing your pension fund! Look to businesses that have stable operations and valuable assets (such as the land wind farms are based on, as an example) and don’t make your portfolio too heavy on companies that spend a lot on R&D but don’t generate much revenue.

Look to yield generating companies

There are various types of businesses in the green energy sphere but when it comes to investment, what are called YieldCos are often the most reliable. YieldCos are energy companies that operate things that generate an energy yield, such as solar, wind and hydropower installations. These are good because they are already generating and selling energy and their expansion plans usually involve acquiring new installations, something they can do and manage quite predictably without introducing too much risk.

What forms of renewable energy are interesting for investment?

Solar power is a sphere a lot of people have been investing in, however it is a highly competitive market and solar installations can be placed just about anywhere, meaning the assets a solar company owns are not usually as valuable as a wind farm or hydropower installation, which benefit from being in prime locations. Wind and hydropower can therefore be quite smart investments, though solar can still be wise if you pick a company with consistent performance and good business models.

Yes, renewable energy is a good sector to invest in as part of your pension plan, however make sure you do your research into the choices of companies available and choose those likely to offer stable performance and survive an inevitable growth in competition. Remember to diversify your portfolio even within the renewable energy sector to reduce risk, too.

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