By Thomas Kostigen
The most utilized natural source for renewable energy is water. Hydropower production for electricity grids has reached record capacity, out-powering solar and wind energy by about three times.
The world over and for hundreds of years, hydropower has serviced communities. It’s been a common power process to generate electricity because it is relatively inexpensive, reliable, and can be easily stored. In the current environment of climate change consideration, it also checks a box: there is no fossil fuel use and therefore no harmful carbon emissions are put into the atmosphere.
The process for producing hydropower involves capturing the energy that is created when water flows from a high point to a lower point. This often is accomplished by damming rivers. Water turbines at the bottom of dams create power that is then distributed to energy grid and converted into electricity.
To be sure, there are environmental consequences associated with damming: fish, habitats and entire ecosystems can be disrupted. Still, hydropower has increasingly become a sought-after renewable energy source because of demand for “green power.” Moreover, it’s 90 percent efficient, meaning little energy is lost between the source and distribution points. A really good solar plant can achieve an efficiency rate of 50 percent, and most run at around 30 percent efficiency. Which is why about 100 countries use hydropower to create electricity, with many of them —China at the top of the list—expanding capacity.
As it stands, hydropower is a growing energy business. Still, it isn’t easy to invest in hydropower projects because they are capital intensive and therefore usually underwritten by governments or public agencies. Institutional investors typically opt for solar or wind power companies to invest in for their portfolios.
But that doesn’t mean there aren’t opportunities. There are in fact, individual companies that specialize in hydropower in which to invest. Many of these operate internationally, but a financial professional can help guide the way to either investing in an American Depositary Receipt (ADR) that, for simplicity sake, represents a foreign company’s stock, or via other direct securities purchase in a foreign market.
Mutual funds and exchange-traded funds, too, invest in hydropower as part of their renewable energy portfolios. You have to dig to see exactly how much of the portfolio is invested in hydropower, as many of these funds label themselves “clean energy” or “alternative energy” funds, but it’s worth the digging.
There are also private offerings for investors to invest in hydropower projects. These offerings often come with high investment minimums, however. One region that is embracing hydropower is Europe. The European Union is attempting to transition to cleaner energy sources and hydropower is a big part of their plan.
Indeed, Germany’s Aquila Capital sees big potential in European renewables —hydropower specifically—and recently launched a new fund to take advantage of the rapid growth in the sector.
New technologies are also making hydropower plants more friendly to the ecosystems on which they are built. For example, Bill Gates is teaming with hydro energy companies to diminish the number of fish that get killed in dam turbines. And other technology breakthroughs are making hydropower more efficient even when there are droughts and rivers don’t run strong.
Solar and wind power may garner most of the attention in the renewable energy sector. But tried and true hydropower should not be overlooked.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.