Powering Your Portfolio: Expert Tips for Investing in the Energy Industry

invest in renewable energy

Renewable energy investment in India has steadily increased in recent times, especially with the government’s push for increasing solar power generation, which started back in 2014. The total capacity of solar power is now close to 35 GW.

Important Data from India’s Energy Industry

As of 31st March 2020, the total installed power capacity of India was around 372 GW, accounting for a YoY increase of around 13.4 GW. Coal accounted for 53.4% of power generation, while the rest included –

  • Renewable energy – 36.2%
    • Large hydropower – 12.3%
    • Wind energy – 10.1%
    • −       Solar power – 9.8%
    • Bio-power – 2.7%
    • Small hydropower – 1.3%
  • Gas – 6.7%
  • Nuclear – 1.8%

Not only the government, but several of India’s top energy distribution companies are now concentrating on producing renewable energy. As such, this has given traction to a lucrative investment proposition, especially for those who support this sector.

Investing Tips for the Energy Industry

Before investing, individuals should keep these following tips in mind –

  1. Investors have to undertake some degree of risk

Even though there is a significant prospect for renewable energy, the sector is still somewhat volatile as coal continues to be on top of the list. Hence, investors will have to undertake a certain degree of risk if they choose to venture into this sector. However, this risk can convert into high rewards, provided investments are made for long-term.

  1. Only invest in companies with high potential

There are more than 15 companies that are fully or partially engaged in generating renewable energy; some of these are listed companies

Investors should exercise caution before continuing with renewable energy investment. They should only consider companies which have offered stable returns in the past and are strategically placed.

Few of the companies to watch out for are –

Please note, these are not stock recommendations. Please conduct your own research and due diligence before investing.

CompanyCapacity of renewable energyTrading as
Tata Power2637 MWTATAPOWER
Adani Green Energy2545 MWADANI GREEN
NTPC920 MWNTPC
Torrent Power787 MWTORNTPOWER
ONGC176 MWONGC
JSW Energy10 MWJSWENERGY

Apart from power distribution companies, there are those which manufacture renewable energy products, like photovoltaics and wind turbines. However, the majority of such companies remain unlisted.

One of the most renowned publicly-listed manufacturers is Suzlon. Even though the company is one of the global leaders in wind turbine manufacturing, it has been through financial troubles for several years. After facing losses for 7 consecutive years, Suzlon finally posted a profit in 2016.

Websol and Indosolar are two other publicly-listed manufacturers and small-cap companies in this sector.

  1. Refrain from partaking in impulsive trading

When learning how to invest in renewable energy, it is critical to avoid impulsive trading. Being emotionally influenced to invest in a certain company should be avoided as it can lead to massive losses.

  1. Check for announcements on government policies

Government policies have a large part to play for the development of renewable energy in India. As such, all official announcements must be taken note of. These may push the stock prices, which can entice an individual to invest. However, if those policies are not implemented, the investment could backfire.

It is, thus, always advisable to check for announcements and developments to take note of the government policies that are implemented.

  1. Keep abreast of news from the right sources

Those asking – is renewable energy a good investment? – should follow the news and announcements made by companies.

Few recent announcements, which can make investments in this sector worthwhile are –

  • Tata Power aims to increase its capacity of renewable energy to 15,000 MW and double its revenue by 2025.
  • Adani Green Energy plans to expand its capacity by as much as 25 GW by 2025. Moreover, the company’s stock price has increased by 741% between 2019 and 2020. The Solar Energy Corporation of India (SECI) has also awarded it a manufacturing-linked solar contract for developing 8 GW of solar projects.
  • NTPC seeks to increase its renewable energy capacity to 24.6% by 2032 from its current 2%. The company announced that it will focus more on this sector and no longer be proactively looking to build greenfield thermal power plants. Its stock prices increased by 7.5% in August 2020 owing to a superb performance in the June quarter.
  • Torrent Power’s stock prices surged by 20% between June and August 2020. Much of it was on account of the company’s 35% profit increase during Q1 2020.

Political developments, which may have an influence, can also make investing in this sector dynamic. As such, investors should always check with recent developments like the ones mentioned above before investing.

  1. Diversification is necessary

Diversification, being an essential criterion for investing, is also necessary for those planning on renewable energy investment.

It is not advisable to invest solely on renewable energy since it is still a volatile market. Investors should start by investing in what they feel is a safe amount, considering the performance of a particular stock. They should continue to invest the majority of their quantum in other options.

For those asking – should I invest in renewable energy? –there may not be a certain answer. The sector is expanding at a tremendous pace but maybe somewhat risky for investing at the moment. Hence, investors are advised to tread carefully.

India’s electricity consumption is set to surpass 15,000 TWh by 2040. The country currently plans to generate 175 GW of renewable energy by 2022. Out of this, solar power will account for 100 GW, wind 60 GW, bio-power 10 GW, and small hydropower 5 GW.

Countries like Germany, Netherlands, Japan, and Singapore have already invested nearly $150 million in India’s renewable energy sector.      

Laura Paul

Laura Paul is a finance tech writer with a passion for educating readers on the latest developments in the world of financial technology. She has years of experience working in the finance industry, and her knowledge and expertise allow her to break down complex financial concepts into easy-to-understand language.

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