Are you, like many Americans, still searching for investment options outside of the stock market? Ever since the recession, people have been seeking ways to distance themselves from the volatility of the stock market while still striving for the historical returns to which they are accustomed. If investing in tangible assets that don’t bend to the stock market’s every whim sounds compelling to you, consider U.S. energy infrastructure to help diversify your portfolio.
The American electricity grid is a complex network of private and public power plants and transmission lines with more than 3,100 electric utilities controlling the grid in the United States. It consists of stockholder-owned utilities (73%), public utilities run by state and local government agencies (15%), and electric cooperatives about (12%). Additionally, there are nearly 2,100 nonutility power producers, including both independent power companies and customer-owned distributed energy facilities.
Given the number of public and private firms involved in the country’s energy infrastructure, there are many ways the average American can invest in this sector.
You can invest directly in a utility like Pacific Gas and Electric through the purchase of common stock or corporate debt, or invest in bonds of a public utility like the Sacramento Municipal Utility District. Additionally, there are numerous energy-themed mutual funds that invest in different companies, or exchange-traded funds (ETFs) that target indices like the S&P 500 Energy Index or Dow Jones U.S. Gas and Oil index. Whatever your investment goal and horizon, there are many types of investment vehicles that can help you meet your needs.
But what if you are interested in an infrastructure-based impact investment that provides a cleaner American source of energy?
Clean tech stocks get lots of attention, but often have higher risk since they generally encompass early-stage companies that are not yet profitable, and are prone to technological and regulatory risk. Alternative energy mutual funds and ETFs can provide diversified exposure to companies in energy efficiency, renewable energy, pollution control, waste and water management, and environmental support services. However, some mutual funds and ETFs include natural gas and nuclear energy in their definition of “alternative energy,” so one needs to scrutinize the fund’s portfolio companies if you want to avoid these sectors.
Retail investors interested in putting capital directly in renewable energy projects have had few options until Mosaic recently put its crowdfunding investment platform to market.
Large-scale renewable energy projects are traditionally financed with institutional capital through master limited partnerships or complex tax-equity structures. Warren Buffet’s Mid-American Energy Holdings was hailed as a bellwether for the renewable energy industry when the company came to market with $700 million worth of notes to help finance a 550MW solar farm, but these bonds were only available for purchase by institutional investors. By opening up renewable energy infrastructure investment to just about anyone, Mosaic is creating a market where solar is an asset class available to the crowd. This means if you support renewable energy, you can invest in a financial instrument that is backed by sale of clean energy from an actual solar project.
With historical underinvestment in America’s energy infrastructure, the ability for the average person to finance rooftop solar will provide more capital to support our country’s energy independence. There are many benefits to investing in American energy infrastructure, and fortunately for us, it seems there are more opportunities to do so every day.
Always consult with an investment professional before making important financial decisions.
Energy infrastructure refer to the many components that are essential to the production and transmission of energy to consumers. It consists of facilities that turn raw natural resources into useful energy products, but also encompasses the physical network for transporting oils and natural gas, and electricity transmission lines. Rail network, truck lines and marine transportation are also key components of the global energy infrastructure.
With high sunk cost and low marginal costs of production, energy infrastructure is regarded as natural monopolies because only one firm can effectively achieve economies of scale. It’s hard for any new firm to put together the capital to develop a power plant, so the few that do can benefit from a market with high barriers to entry. As a result of these conditions, energy infrastructure tends to be highly regulated by government entities to ensure fair pricing to consumers. In the U.S., the distribution of electric power is regarded as an intrastate function, and is regulated by state public utility commissions.
Photo from: https://www.frenchcleantech.com/
Disclaimer: Any opinions expressed herein by persons not affiliated with Mosaic reflect the judgment of the author and not necessarily that of Mosaic. Nothing herein shall constitute or be construed as an offering of securities, or as investment advice or recommendations by Mosaic. Mosaic’s investments are limited to investors who meet applicable suitability standards based on income, net assets and state of residence. Please click here to learn more.