With nearly 200 countries pledging to significantly reduce their carbon emissions as part of The Paris Climate Agreement, the shift toward a more renewable future is certain.

So is an inevitable level of disruption. The energy industry is likely to be the focal point of that disruption. In order to reach the targets set by the Paris Agreement, the International Renewable Energy Agency predicts that at least $1.7 trillion will need to be invested in the sector in the next decade, much of which will come from the private sector.

As the need for private investment grows, individual investors have additional opportunities to benefit. Technological improvements continue to improve the viability of sustainable energy, as falling costs render government subsidies redundant.

With lower project costs, declining government intervention and a growing pool of potential projects, there is newfound opportunity for individual and smaller institutional investors to benefit from renewables projects that were previously only available to large institutions.

Renewable Costs Lure Investment

Though renewable projects once required subsidies in order to compete with the price of fossil fuels, research by Lazard, an asset manager, indicates that this is no longer the case. Countries across the Americas and Europe are now building profitable solar and wind farms, with minimal to no government support. As development costs fall and renewable power becomes more commercially viable, investors have the opportunity to fund a more diverse array of projects.

Exclusive of subsidies, Lazard estimates that the levelized cost of energy of onshore wind power has fallen to between $29 and $56 per MWh, while utility-scale solar has fallen to between $36 and $46 per MWh. The cost of power is now similar to that of electricity generated from coal, which ranges from $60-$143 per MWh, or gas, which falls between $41 and $74 per MWh.

Research from Bloomberg NEF reaches similar conclusions. By 2030, solar, wind and battery technology will be cheaper and more effective than fossil fuels at generating, storing and dispatching energy. 

The reasons behind this decline are manifold. Coal plants suffer from rising maintenance costs and the impacts of regulation that force plant operators to install pollution controls. Meanwhile, improvements to technology across the renewable landscape have significantly curtailed the startup, production and transmission costs of renewable energy solutions. In other words, the cost of sustainable energy has fallen to be competitive with traditional fossil fuel solutions, irrespective of the additional environmental benefits. 

Solving for Intermittency

One of the enduring objections to the commercial viability of solar and wind energy has been that of variable output. Some question, for example, what will happen to a wind farm on a windless day, or a solar farm on a cloudy day. However, renewable providers have already found ways to minimize and compensate for the absence of natural resources in these instances, which has drastically reduced the risk associated with investing in renewable energy projects.

A significant amount of variability can be controlled through proactive planning. Large-scale renewable projects are now frequently located in areas where they receive the steadiest direct sunlight or most consistent wind – frequently identified through data studies and modeling – to maximize their output. More efficient turbine designs also reduce the wind power required to generate electricity, which allows them to operate for a greater percentage of the day.

Further, technological solutions for storing energy have advanced significantly since the first renewable plants came online. In addition to battery storage, which has grown in both affordability and scale, compressed air and hydrogen fuel cells offer opportunities to broaden and diversify energy storage at an industrial scale. Pumped storage, commonly associated with hydroelectric power generation, may also offer a breakthrough for off-peak power supply, given its already widespread use and relatively high rate of efficiency.

Finally, diversifying sources of renewable energy across the grid can also help to alleviate shifts in weather. While solar energy production peaks intermittently during daylight hours, continental wind tends to peak at night and coastal wind tends to peak during the day. Efficient power grids, coupled with more accurate output and demand modeling, can help to account for these swings. Additional intermittent output from fast-ramping natural gas and rapidly developing power storage solutions further alleviates the issue. 

Setting the Course for Long-Term Growth

An investment is a viable opportunity if there’s a market for it. We’ve seen that there certainly is, with the global need for energy projected to increase over 25 percent by 2040. With advancements in modern life, such as smart houses and electric cars, there is an ever-increasing demand for energy. But recent rising energy demand have largely been met with increases in fossil fuel generation. However, technological advancements and disruption in the sector, coupled with population growth, rising incomes and more extreme temperatures, make it clear that the immediate need is for renewable energy 

Rapidly falling renewable costs are likely to offset that calculus. While historic trends in energy use are likely to accelerate, the sources of energy are more likely than not to be renewable, which makes the sector ripe for investment. 

Public attention to the impacts of climate change, as well as falling renewable costs and the reduction of barriers to entry, have piqued the interest of retail and private investors in the space, as evidenced by the burgeoning ESG investing movement. Falling prices, combined with a global emphasis on reducing emissions, ensure the long-term prospects for renewable energy.

With renewable investment set to hit $2.6 trillion by the end of this year, it’s no surprise that a new class of investors are betting that the creation of green projects will lead to strong returns. 

This article was written by Michael Tishler.

Tishler is the CEO and Co-Founder of Novasec, a Tel Aviv-based innovative investment platform designated to match qualified investors with opportunities in the fast-growing renewable energy sector. A skilled entrepreneur with a demonstrated history of success across the financial services and technology industries, Michael has experience with start-up ventures, sales management, capital raising, and advanced payment systems. He previously co-founded and was CEO of Colossus Financial Services, an investment banking and M&A advisory firm which worked with leading Israeli financial institutions.