Rebecca Teltscher

Otherwise known as Green Energy, Clean Energy, or Sustainable Energy, renewable energy is electricity that is obtained from natural resources that is sustainable and can be naturally replenished with minimal impact on the environment.  Among other benefits, renewable energy greatly reduces pollutants related to conventional power generation such as greenhouse gases and other hazardous emissions. With an abundance of wind, solar and most importantly, moving water, Canada is a world leading producer and consumer of renewable energy.   In Fact renewable energy makes up almost 17% of Canada’s electricity supply.

While the concept of renewable energy sounds wonderful and great for the environment, there are several factors that need to be taken into consideration when comparing to conventional sources of electricity. Thfunny-renewable-energy-big-fane main disadvantage with renewable energy is its reliability of supply. The availability of sunlight, wind, and rain  depend on the weather. For example, if there is no wind on a certain day, wind turbines will not function properly and therefore electricity  will not be generated. Consequently, on very windy days, too much energy produced can cause blackouts if the oversupply of electricity  strains the power grid. On the other hand conventional sources of power generation including coal fired, natural gas fired and nuclear are easily transportable, easier to control, cheaper, and are not affected by weather. Eventually, with technological advances, renewable energy can continue to reduce the dependence on conventional energy. However, for now, conventional energy remains the main source of base-load (minimum amount of power required to meet demand) supply and renewable energy is mainly used for peaking power supply (power plants that run occasionally when there is a high demand). As renewable energy storage becomes more efficient and cost effective, we can see an eventual shift of base load capacity from conventional to renewable.

When looking at renewable energy companies as a potential long term investment, there are several things to consider.  Many companies are recipients of government subsidies in the forms of tax exemptions, fixed tariffs above market price, and accelerated depreciation on capital costs. These temporary subsidies boost earnings, even though operations may not be cost efficient since renewable energy is more costly to produce. Once the subsidies start rolling off (many of them are fixed for 10 years and will start rolling off in the next few years), we will get an idea of the companies’ true profitability and sustainability. In the meantime, many conventional energy producers have a renewable energy portfolio that offers diversity and access to the segment. While small in scale, companies we own such as Transcanada, Enbridge, Altagas, Fortis, and Emera all have various investments in different renewable energy projects.  With continued government emphasis it looks like renewable energy will be a growing part of Canada’s power generation infrastructure going forward. We will continue to watch the space closely for developments from both the utility companies we already own as well as any new players that demonstrate an ability to pay a steadily growing dividend over time.  We are always fans of investments that can pay our clients a sustainable growing steam of income.

 

 

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