Alternative Energy: Defining the Driving Forces

With the stock market and commodities in turmoil, ultra-low interest rates and disappointing corporate earnings investors are left scrambling for worthwhile investment opportunities. For long-term investors looking growth in the next two decades, the energy sector may be the answer, specifically alternative energy.

Historically energy has been a volatile industry, but the last two years we have seen energy volatility at new levels, crashing from highs $140/Barrel to lows of $26/Barrel; World Energy Issues Monitor says energy volatility has become the new norm. The first weeks of 2016 have seen wild swings in energy prices, where the WTI has fallen from highs of $36/Barrel to lows of $26/Barrel and back to $33/Barrel all within less than a month.

With crude oil prices at its lowest levels since 2001, alternative energy might not seem attractive, after all, there is no or little incentive to move away from oil; however, 2015 global trends tell us a very different story. The latest figures from Bloomberg New Energy Finance show a record level of investments and installations of renewable power capacity globally in 2015, despite the oil prices. The crashing fuel prices have not slowed down investment in renewable energy.

This trend may come as a surprise to some, but when looking at the driving forces behind alternative energy, it quickly becomes apparent that oil prices only play a small role. Here are the top three growth drivers that will continue to fuel alternative energy.

Public Policy

The most powerful driving force is the change in public policy, favoring clean and renewable energy. The biggest testament to this is Paris 2015 agreement, the first universal climate agreement with the primary goal of reducing CO2 emissions and limiting the temperature rise to 2C compared to pre-industrial times. Although the agreement has its shortcomings, it is a significant milestone. Developing and developed nations will continue to make investments in clean and renewable energy and provide incentives for CO2 reduction to comply with the agreement.

Public Sentiment

Time and time again public polls show a vast majority of people are in strong support of renewable energy investments. A recent survey revealed that people are even willing to spend more on renewable energy than on fossil fuels. The impact of this is two-fold: at the macro level the public sentiment will continue to put pressure on politicians to grow sources of renewable and clean energy; at the micro level consumers will look for renewable energy sources for their daily energy needs; installations of solar panels on rooftops will continue to grow.

Cost Reduction

With the advancement in technology comes improved efficiency and lower cost. Over the past six years the cost of electricity from renewable sources has significantly reduced, especially for PV- photovoltaics. This trend in cost will make renewable energy more accessible to consumers, corporations and governments who are looking to reduce their carbon footprint.

The growth in alternative energy has a small correlation with the price of fossil fuels. The growth is driven by factors other than the price of oil; consumer sentiment and ethical issues are at the forefront and will continue to drive the sector.

 

 

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