A growing market is not the same as a good investment
More solar and wind capacity is installed almost every year. But many of the companies making the equipment compete hard on price, and the price of panels and turbines has fallen for years. Growing sales with shrinking profit margins is a common pattern here.
Companies that own the finished wind and solar farms, and sell electricity under long contracts, tend to have more predictable income than the companies making the parts.
Why interest rates matter so much
A wind or solar farm costs a lot to build and then earns a fairly fixed income for decades. Most of that building cost is borrowed. When interest rates rise, borrowing costs more and the value of those future earnings falls. That is a large part of why clean energy shares fell heavily when rates rose after 2021.
Policy risk
Subsidies, tax credits, import tariffs and planning rules all shape the economics of clean energy, and they change with governments. A change of policy in one large country can move the whole sector.
Building a balanced mix
A portfolio of only solar equipment makers is one of the most volatile ways to invest in this theme. Adding utilities and grid companies makes it steadier, at the cost of lower potential gains.
Because many clean energy companies are small, a cap on any single holding helps avoid one share dominating the result.
The parts of clean energy
Solar
Make panels, inverters and mounting systems, or install them.
For example: First Solar, Enphase Energy
Wind
Build turbines or develop and run wind farms.
For example: Vestas, Ørsted
Renewable utilities
Own and operate large amounts of wind and solar generation.
For example: NextEra Energy, Iberdrola
Grid and storage
Build and supply the cables, transformers and batteries needed to move and store power.
For example: Schneider Electric, Quanta Services
Companies are listed to show what each category means. They are not recommendations, and the list is not complete.
Three ways to invest
There is no single right route. Many people combine them, and plenty decide a broad global fund is all they need.
- 1
Buy individual shares
Pick one or more clean energy companies and buy their shares through a broker or investing app.
- Good for
- Simple to understand. You own exactly what you chose.
- Watch out for
- If you only hold a few companies, one bad result can do real damage. Picking winners is hard, even for professionals.
- 2
Buy a ready-made fund
A fund (often an ETF) holds dozens of companies in one purchase. Examples include the iShares Global Clean Energy ETF (ICLN) in the US and the equivalent iShares UCITS fund (INRG) in the UK and Europe.
- Good for
- Instant spread across many companies, with very little effort.
- Watch out for
- You get what the fund provider chose, including companies you may not want. Themed funds usually charge more than broad trackers, so check the yearly fee and the top ten holdings. Which funds you can buy depends on where you live.
- 3
Build your own portfolio
Choose your own mix of companies and how much of each, then buy them through your broker. This is what Arithmos helps with: describe the mix in a sentence and it builds and tests one for you to consider.
- Good for
- You decide exactly what is in and what is out, and you can see the reason for every company.
- Watch out for
- More to look after than a fund. Buying many separate shares can cost more in dealing fees, and a tested result is a simulation, not a promise.
The risks
- Volatility. Clean energy funds have fallen by more than half from past peaks, and falls like that can last for years.
- Interest rates. Higher rates raise costs and reduce the value of long-term income.
- Policy changes. Subsidy cuts or new tariffs can quickly change profitability.
- Price competition. Equipment makers face constant pressure on margins.
- Small companies. Many names in the theme are small and less established, which adds risk.
Try it yourself
The quickest way to understand a portfolio is to look at one. Here is how to turn this guide into something you can inspect.
- 1
Start from the idea
The button below opens the builder with this guide's idea already typed in. Change any part of it: the number of companies, the countries, the limit per company.
- 2
Read the reason for every company
You get a list of companies, how much of each, and a plain-English reason for each pick. If one looks wrong to you, you can ask for it to be changed.
- 3
Look at the bad years, not just the good ones
The portfolio is replayed against real past prices. Check the biggest fall along the way, and ask yourself whether you could have sat through it.
- 4
Decide for yourself
If you want to act on it, you buy the shares yourself through your own broker. Arithmos never holds your money or places trades.
“Companies that make most of their money from clean energy: solar, wind, power grids and battery storage, plus utilities that mainly run renewables. 20 companies worldwide, no single one over 8%.”
Browsing portfolios other people have published is free. See pricing for what building your own includes. A tested result is a simulation using past prices. It is not a forecast and not a recommendation.
Common questions
Is clean energy a safe long-term investment?
No investment is safe in the sense of guaranteed. Demand for clean energy is expected to keep growing, but share prices in the sector have been among the most volatile in the market.
What is the difference between a clean energy fund and an ESG fund?
A clean energy fund invests specifically in energy companies such as solar and wind. An ESG fund invests across all industries but filters companies by environmental, social and governance scores. An ESG fund may hold very little clean energy.
Do utilities count as clean energy?
Some do. Several large utilities generate much of their power from wind and solar. Others still rely mainly on gas or coal. It is worth checking what a company actually owns.
