Financial Resource

With the popularity of clean energy, carbon reduction and Earth friendliness, it would seem that investments in alternative energy funds would be virtually risk free.  But just like any emerging industry, there is no guarantee that all sectors of the market will succeed.  Just like the tech bubble that began forming in the early and mid 90s, the alternative energy market will likely soon divide the winners from the losers.  If you are lucky or smart enough to pick a winner, you’ll soon be rolling in green.  On the other hand, losses can be significant for those who chose the idea that wasn’t embraced by the market.

Another important factor when it comes to energy is government regulation.  Other sectors are relatively free of government interference as long as they obey the basic laws.  Energy, on the other hand, is seen as something with national security implications and is treated differently.  Since there’s no way to know how the government will react one way or the other, this adds a good deal of risk to any alternative energy investment.

It’s certainly not difficult to find an alternative energy fund to invest in.  These days the market abounds with them. Whether it’s solar, wind or battery powered vehicles, there’s a fund to meet any investor’s outlook.  The biggest risk, regardless of which one you choose, is volatility.  Energy still revolves around oil, coal and natural gas.  When these industries are demanding high prices on the commodities markets, alternative fuels soar in value.  However, once the price returns to more common levels, sustainable energy still takes a back seat to fossil fuels.

Like any energy investment, alternative energy sources can be greatly affected by regional insecurity.  Certain areas do better when it comes to green fuels just as some areas have more fossil fuels.  Solar doesn’t do well in Ireland and geothermal is restricted to areas with significant seismic activity like southern California.  If you invest in an industry that is focused on an unstable nation, there is no guarantee of anything.

Alternative fuels currently enjoy relatively low tax burdens.  But don’t count on this always being the case.  As they grow in popularity, governments will increasingly see the opportunity to reap tax revenues, like they currently do with gasoline.  This can have a tremendous affect on the market.

One downside of sustainable energy that is rarely discussed is the possibility of having too much.  For the world, an ample supply is great, but for an investor it can mean the bottom dropping out of an oversupplied market.  Energy, as the oil companies will tell you, is an industry extremely dependent on supply and demand.  If the market is flooded with too much energy, the price people are willing to pay drops rapidly.  The more popular the investments become, the greater the danger that the investments will lose their demand.

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