But they won't get us all the way across the green-energy finish line.
When you read about renewables, those are probably the two you hear most about. The mainstream media has spilled a lot of ink about the explosion in solar and wind investment.
All this talk about the growing popularity of these green-energy darlings has helped them grow more.
Solar generated one terawatt hour ("TWh") of energy in 2001 and wind generated 38 TWh. For comparison, the world consumed almost 23,000 TWh of electricity in 2019.
But since 2001, solar and wind have exploded. Solar hit 1,033 TWh in 2021, and wind reached 1,862 TWh.
This has been great for getting the world to understand renewables. And just as important, investors have gotten on the green-energy bandwagon. Last year was the first time the world invested more than $1 trillion in renewable energy.
But solar and wind are only the beginning. Investors shouldn't get too complacent when putting their money in renewables. As I'll explain today, it's important not to get caught up in "first-mover advantage" stocks.
We can see this through the iShares Global Clean Energy Fund (ICLN), which holds a basket of green-energy stocks. ICLN has more than doubled the S&P 500's performance over the past five years... up 111% versus 50% for the broad market.
And there have been plenty of individual standouts... like solar-panel company SolarEdge Technologies (SEDG), which is up more than 500% in the past five years. NextEra Energy (NEE), one of the earliest power companies to invest in wind, is up more than 800% since 2001.
And SolarEdge peer Enphase Energy (ENPH) is up more than 6,200% since 2018.
This has been a great way to get people comfortable with renewables. The stock returns speak for themselves.
But as we keep growing out the renewable power grid, solar and wind won't be able to do it alone.
Both of these technologies rely on unreliable energy sources. The sun rises and sets each day, and it can be obscured by clouds. Solar panels aren't generating enough electricity when it's dark out.
Likewise, we can't count on strong winds to blow turbines every day.
Folks also still push back on solar panels and wind turbines because they're eyesores. And it's hard to transport that energy. We have the most room for solar and wind energy where folks don't live – places like northwest Texas and the Arizona desert.
We're finally making advances in tidal power.
For years, folks have been trying to master energy from the ocean. But the tides were frankly too powerful. Scientists tested generators in New York City's East River... and the fans got torn to shreds.
Tidal power has the potential to solve a lot of the issues with wind and solar...
It doesn't disrupt the view the way solar and wind do, because it's underwater. Plus, the tides are always moving. They can generate more consistent energy all day and night. And tidal power is built near the coasts, where nearly 75% of the world population lives.
That's why we were so excited about a recent milestone out of the U.K.
A few weeks ago, a tiny energy company called SIMEC Atlantis Energy (SAE.L) announced an important breakthrough in tidal power. The company said that its tidal stream has achieved a world first by producing 50 gigawatt hours ("GWh") of electricity.
One TWh is 1,000 GWh. So this is still way smaller than wind and solar energy. But it's still a major step toward viable tidal energy... The rest of the world's tidal energy output is less than half that amount.
Tidal power has serious potential to take market share as the technology improves. But that can also be a big opportunity for savvy investors...
We often talk about electric-vehicle ("EV") company Tesla (TSLA), which had first-mover advantage when the space was still new. A lot of folks got too attached to Tesla, and missed the chance to invest in other companies with promising EV offerings.
The same applies to solar- and wind-power companies. Just because they were the first and the biggest renewable-energy investments, doesn't mean they'll be the winners forever.
These companies' stocks surged for a while because of their first-mover advantage. But new technologies are emerging in the renewables sector. It could totally change the competitive landscape.
If you're interested in renewable-energy stocks, always look out for how the industry is developing. Don't assume that the first or the biggest companies will always be the best performers.
And as for SIMEC Atlantis... It's likely too early to pile in just yet. But this is a great reminder of how fast markets can change. This could be a company to keep an eye on if tidal energy starts to gain traction.
March 7, 2023