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Organic Agriculture: Fad or Durable Trend?

Background on Organic Agriculture

Walking down the aisle of the grocery store, a shopper can find a variety of different food labels attempting to win their attention such as “No Added Sugars”, “Gluten-Free”, or “No Artificial Dyes or Flavors.” More recently, labels such as the one below have been popping up in grocery stores across the U.S.

 USDA Organic Seal

It used to be that organic products were only found in select stores that specialized in organic or sustainable food products, but more and more organic products are going mainstream and can be found in big-name grocery stores such as Walmart, Costco, and Target. In fact, Walmart, is the #1 seller of organic products offering more than 400 different organic products. That figure surprises some people that expect traditional specialty stores such as Whole Foods or Trader Joes to dominate the space, but the market share of Walmart outpaces both of these popular organic store chains.

But what actually constitutes a product as organic? While this definition could be different based on who you ask, the Environmental Protection Agency defines “organically grown” as food that is grown and processed without synthetic fertilizers or pesticides. However, natural pesticides that are derived from animals, plants, bacteria, or minerals are allowed. Organic production has been taking place in the United States since the 1940s but it started to gain steam in the 1970s as consumers demanded more environmental awareness and became increasingly concerned about how food was grown. In 1990, Congress passed the Organic Foods Production Act to develop national standards around organic production in both livestock and crop production. The National Organic Program which is a marketing program managed by the USDA aims to create and monitor uniform standards around organically produced products to aid consumers in their decision-making.

Drivers for Organic Products

Organic sales currently account for more than 4% of total U.S. Food Sales and that number is projected to continue rising in the future. Total sales of organic products grew 31% from 2016 to 2019 domestically and are projected to grow at a compound annual growth rate of 10% through 2025. The dominant organic product in the U.S. market is fruits and vegetables with large growth in 2020 in the pantry stocking and meat, poultry, and fish sectors.

Organic sales are on the uptick with sales reaching $56 billion in 2020.

While there are a variety of factors driving organic food demand such as environmental or health concerns, the largest reason is consumer preference and affordability. Historically, organic products cost anywhere from 10-50% more than conventional products. When it comes to one of the U.S. largest agricultural exports, corn, the price of organic corn is more than double its conventional counterpart. Organic production is more costly for producers.  In addition to higher seed and land costs, producers face a costly 3-year transition period in the land to become certified organic. During this time, the land must be “cleansed” of any conventional pesticides or fertilizer. Once a farm is deemed USDA certified organic, the returns are considerably higher than conventional methods for corn and soybeans in particular. The table below from the USDA presents data that shows that although organic production costs are higher than conventional costs, the higher prices received for organic crops more than offsets the higher production costs for corn and soybeans.  The same can also be said for organic meats and produce however there is less widely available information about those markets.

While the costs of organic production are higher, this is offset by higher prices received.

After investigating the returns to organic production, you might ask, why aren’t more farmers producing organic products? The biggest hurdle for farmers is the three year transition period and capital expenditures needed to become organic. The three-year transition can cause a financial hit to producers that can be difficult to recover from. Another difficulty for organic producers is the lack of infrastructure in the organic industry. Unlike, conventional products like corn and soybeans, there is not a centralized market such as an exchange for organic products to be bought and sold. Organic products often require more specialized handling and storage and there are not as many facilities able to handle these needs. While government policy is working to change this, there is much work to be done in this space if the U.S. is to meet its own domestic demand for organic products.

Investment in Organic Agriculture

An investment in organic agriculture could be attractive for investors not only in investment performance but also may fit their preferences to actively support environmental, social, and governance (ESG) standards. Many organic companies share these beliefs and would seek to leverage capital from ESG investors to transform and grow the organic marketplace and infrastructure. Investors looking to capitalize on organic investing have a variety of options. They could invest in the common stock of companies selling organic products such as WhiteWave Food (WWAV) which owns 4.2% of the organic market share with popular brands such as Horizon Organic. In 2017, WhiteWave Food was acquired by Danone, one of the largest multinational food companies.

Another common stock option could be to invest directly in organic grocers such as Sprouts Farmers Market (SFM) which specializes in premium organic foods and performed quite well against large grocery competitors during the COVID-19 pandemic. Sprouts delivers a unique farmers market experience with an open footprint of fresh produce at the heart of the store and welcoming look and community feel.  Sprouts offers an assortment of fresh, high quality food that is sought after by its more affluent and educated consumers. Because they are able to capitalize on health and quality conscience consumer base, their profit margin is 4.5% which is strong compared to one of the largest grocery stores in the U.S., Walmart, who has a profit margin of 1.4%. Sprouts’ ESG operating focus has also impressed its stakeholders, particularly its efforts to reduce food waste by 78,000 tons.  Sprouts has an equity market cap of $3.2 Billion and trades at a reasonable 11 times trailing twelve month earnings.  Sprouts is ramping its growth plans and intends to add 300 – 400 new stores in expansion markets of Texas, Florida, California, and New England.

In last month’s article, we discussed the Promised Land Opportunity Zone Fund which provides investors the opportunity to deploy capital in farmland which has historically provided strong returns with inflation hedging capabilities. The farmland in this fund lies within an opportunity zone, providing tax benefits to investors. The Promised Land Opportunity Zone Fund is looking to deploy capital to organic conversions in opportunity zones as part of its broader opportunity zone investment in farmland. If you are interested in learning more about the Promised Land Opportunity Zone Fund, please contact Ethan Rhee at

Another option for investment in a private fund that is more of a pure play in the production of organic food, an investor could invest in an organic farmland REIT such as the Vital Farmland REIT LLC (Fund II) managed by Farmland LP. Farmland LP’s has assets under management valued at more than $200 million across its two farmland funds, totaling close to 15,000 acres. Farmland LP earned the highest corporate sustainability rating by HIP Invest Inc. in 2021 for its ESG efforts.

For ETF investors, there are fewer options for direct organic investment however several ETFs are investing in food production and food processing. The First Trust Nasdaq Food & Beverage ETF (FTXG) has $6.4 AUM and also has a AAA rating (best) for ESG impact by Morgan Stanley Capital International. Their primary holdings are in food processors such as Bunge, Tyson, Archer-Daniels-Midland, and General Mills. These companies are all making significant strides towards increasing processing capabilities for organic products.

While organic agriculture has made substantial advances in the past ten years, this emerging agricultural sub-sector is still in need of capital to grow productive capacity and reach its full potential. An investment in organic food production provides for diversity of consumer preferences as well as environmental and sustainable production benefits for American farmers and farming communities. The historical and projected organic sales data and savvy investor capital flows suggest that organic agriculture is a durable trend that is here to stay.

What is Education Technology?

Chalkboards, pencil sharpeners, and slide projectors: all represent old school educational tools. Today these low tech devices are being rapidly replaced by virtual reality, white boards that can record what is written, and most importantly, computers. The locus of education has quite literally changed, from a physical lecture hall to a virtual classroom in the cloud. Leading this revolution is education technology, also known as “EdTech.” Education technology combines information technology and computer software with a wide array of educational methods to foster learning and student growth. Combining tools like virtual reality and artificial intelligence with other forms of media like podcasts and instructional videos, Ed Tech is re-shaping the way people learn from ages 2 and up. The COVID-19 pandemic spurred growth within this sector and has some wondering whether this trend will continue post pandemic.

Spurred Growth from COVID-19 Pandemic

1.2 billion children around the world went from sitting in classrooms to sitting behind a computer in April of 2020. A new wave of e-learning, which uses computer assisted teaching to educate, persisted throughout school districts. Prior to the COVID-19 pandemic, online resources such as Coursera and Kaplan existed but were not as widely adopted. As teachers navigated e-learning, students and parents had to take a more self-taught approach to learning. E-learning offered students more flexibility in their learning environment and gave them opportunities to seek out more widely available resources in the digital world. As a result of COVID-19, researchers are projecting a $70 Billion increase in the e-learning investments in the next five years.

Major Players in Education Technology

There are a variety of interlocking participants within the education technology market. The government has been involved in the space since 1994 with the creation of the Office of Educational Technology within the Goals 2000 Educate America Act. As part of the United States Department of Education, it works to develop policy, media tools, and digital infrastructure to support education technology for K-12 learners. Prior, to COVID-19 there was little funding available to build an e-learning infrastructure and even post pandemic, resources are scarce particularly in rural or lower income areas.

Private industry has been eating up the opportunity to build out an education technology infrastructure and flourished even further during the pandemic. Experts predict by 2025 that there will be more than 100 publicly traded companies listed as an education or training companies with market cap’s greater than $1 billion. The ability for these companies to create cost-effective technology that can be integrated into a classroom setting or at home will be crucial to their growth. Companies such as Course Hero and Coursera help students learn a variety of subject matters such as calculus and biology through online courses and interactive platforms. Other companies such as Wondrium have capitalized on the fact that millions of Americans of all ages are seeking continuous learning experiences by offering courses in traditional university level topics such as history, economics, psychology, etc. as well as special interest topics like food, music, travel, and many more.

Education and training companies are projected to continue increased market cap growth.

While some traditional learning institutions may fight the education technology boom, many more public universities are embracing new ways of instruction and learning. For example, the University of Illinois at Urbana-Champaign has been at the forefront of investing in technology for classrooms and e-learning. In particular, through the Center for Innovation in Teaching and Learning, investments in eTexts have been made to integrate classrooms with online media. Craig Lemoine, the Director of the Financial Planning Program at Illinois, has worked to build 3 personal finance eTexts that not only can be used for student courses but eventually can be sold to private individuals or companies. “The final product matched our goal… High quality from authorship to final digital product, accessible across any number of learning styles,” said Dr. Lemoine.

Investment Opportunities in Education Technology

The market for education technology reached close to $75 billion in 2019 and is projected to grow at a 20% annual rate to $319 billion by 2027. In 2020 alone, $2.2 billion in venture and private equity capital was raised for U.S. education technology startups focused in augmented reality, artificial intelligence, and online course development. Block chain technology integration is also expected to drive innovation and investment in education technology as the academic world seeks better options for safeguarding student records and performing analytics.

Hardware development in EdTech dominants the market.

While the United States and other countries have embraced investment in education technology, it has not been as well received in China. In July of 2021, China announced regulations that banned companies from making a profit in the education sector. Particularly, companies offering tutoring services must be registered as non-profit. This caused many Chinese EdTech companies’ share prices to plummet. Domestically, investment in education technology continues to boom with no signs of similar government heavy-handed prohibition on for-profit business models.

There are a variety of options for investing in the nascent EdTech sector whether that is by investing directly in listed companies in the sector such as Chegg,Inc. (NYSE: CHGG) or Kahoot (Oslo: (KAHOT.OL). Note neither CHGG or KAHOT has yet achieved profitability.  Another new, more diversified approach to publicly listed investment vehicles in this space is Global X Education ETF – EDUT, first listed on the NASDAQ on 7/10/21. EDUT seeks to invest in companies providing products and services that facilitate education, including online learning and publishing educational content, as well as those involved in early childhood education, higher education, and professional education. This ETF’s top holdings are major players in EdTech such as Chegg, Pearson, and Zoom. As a newer ETF, EDUT has only $8 million under management today.  We will continue to monitor EDUT progress as a thematic investment possibility in education technology.

Future Implications and Growth Potential

As a challenger to traditional learning, EdTech has some people questioning if it will replace traditional learning methods. We believe EdTech will aid and augment traditional learning rather than replace it by creating more collaborative and productive learning environments that increase student engagement while increasing educator efficiency. EdTech is geared towards creating a more accessible environment for students to learn. However, many of EdTech’s benefits are highly dependent on a student’s ability to access this technology through broadband networks. Shockingly, 22.3% of rural Americans and 27.7% of Americans in tribal lands lack even basic broadband coverage.

We believe there is a high correlation between Opportunity Zones (low income communities), food deserts, and educational deserts. In the coming months, we plan to explore this overlap and devise purposeful investment strategies to improve the lives of children and families across the country. Check back next month for an in-depth analysis on investing in broadband and the opportunities it could present.

Controlled Environment Agriculture: the Inside Scoop on Indoor Ag

Raging wildfires. Extreme droughts. Violent hurricanes. Rogue tornadoes… Nature is unpredictable.

2020 was a record-setting year for natural disasters, and 2021 has already witnessed numerous extreme weather events. Meanwhile, experts predict that the frequency and severity of storms is only rising.

California’s Dixie Wildfire, August 2021.

Nature is unpredictable, yet her whims govern our most fundamental need: food. Worldwide, droughts, flooding, and famine are an all too familiar story. One in every nine people is hungry, while one in three is malnourished.

As our global population nears 8 billion, it is imperative that we create a reliable, resilient agriculture system, one insulated from nature’s caprices. A solution may lie in CEA.

What is CEA?

CEA, or Controlled Environment Agriculture, wields cutting-edge horticultural, engineering, and computer technologies to produce high-quality crops in efficient, indoor environments. Bringing crops indoors shields them from pests, disease, and extreme weather, permits year-round growth, and facilitates cultivation of plants in any climate zone.

A rapidly evolving field, CEA nevertheless started simply: beginning in the first century A.D., the Romans used rudimentary greenhouses to protect crops during the winter. Over time, greenhouses became more sophisticated: their walls were built of glass, warm water heated them in winter, and electric light bulbs provided supplemental lighting. Today, advanced greenhouses optimize plant growth conditions: computer systems control brightness, temperature, humidity, and even carbon dioxide levels.

Vertical Farming: the Up- and Downsides

Traditional greenhouses, however, are only the beginning of CEA’s many techniques. Global population projections—over 10 billion people (80% of whom will live in cities) by 2050—encourage scientists to develop new, compact farming methods like vertical farming. Vertical farms turn traditional farms sideways. In vertical farming, plants are stacked one atop another as they grow. The resulting farm is both space efficient—vertical farms can be placed in basements or old shipping containers—and water efficient—vertical farming’s water use is 5% that of standard agriculture.

Nevertheless, vertical farming has downsides. One major challenge is lighting. Each plant contained in a vertical stack requires adequate light to grow. Because the uppermost plants shield lower plants from overhead light, each individual layer of a vertical farm must also be lit. The resultant need for numerous LED lamps increases input costs (and, in turn, crop prices) and lowers vertical farming’s energy efficiency. Additionally, vertical farms pose challenges to workers, who often spend their days ascending and descending costly, cumbersome scissor lifts to complete tasks like planting and harvesting on each layer.

A vertical farm.

The benefits of indoor horizontal farms, therefore, should not be underestimated. One innovative horizontal farming operation is Pure Green Farms. Located in South Bend, Indiana, Pure Green Farms’ horizontal greenhouse relies on natural light and uses minimal artificial lighting to increase energy efficiency. Additionally, the entire planting and harvesting process is automated, creating a more uniform product and labor savings compared to traditional production.

Horizontal farms also offer opportunities to combat microclimates, unintentional byproducts of CEA. One greenhouse contains numerous microclimates—slight shifts in location can significantly alter plants’ growing conditions. For instance, a plant directly beneath a growth lamp may be subjected to higher temperatures and brighter light than the plant beside it. Such inconsistent growing conditions in turn produce inconsistent crops.

Purdue University researchers recently constructed an automated horizontal greenhouse to address this problem: plants constantly circulate around the greenhouse on conveyor belts. Consequently, no plant remains in one microclimate for too long, and all plants are exposed to nearly uniform conditions. This innovation allows horizontal farms to produce more consistent crops.


In both vertical and horizontal CEA agriculture, farmers are looking beyond soil. For instance, many CEA farms are hydroponic: plant roots are submerged in regulated, nutrient-rich water solutions rather than soil. Hydroponics not only allows detailed regulation of nutrient and pH levels but also minimizes water usage by recirculating water. Further, hydroponics allows plants to grow more quickly and closer together.

A hydroponic greenhouse.

One variation on hydroponics is aeroponics: plant roots are placed not in soil but simply in the air. Surrounded by oxygen, vital for cellular respiration, plants are frequently sprayed with mist containing water and dissolved nutrients. This process not only reduces water usage by up to 98% but also increases plant nutrient levels, offering potential health benefits for consumers.

Another twist on hydroponics is aquaponics, in which a plant growth environment is coupled with a fish tank. Fish provide nutrients for the plants, which in turn clean the water for the fish. Nevertheless, the aquaponic system is not perfectly self-sufficient: aquaponics requires significant electricity to heat and circulate water and often utilizes supplemental water filtration systems.

Cost-Benefit Analysis

The benefits of CEA are numerous. By growing plants inside, CEA minimizes or even eliminates the need for pesticides, which are not only potentially detrimental to human health but are highly water-intensive to produce. Additionally, grown in optimal conditions, plants mature faster and more consistently. With CEA, crops can be grown in population-dense urban areas; thus, fresh, nutritious, locally grown crops can be delivered at reduced transportation costs.

CEA’s advantages, however, come at a high monetary cost. CEA technology is expensive. Simply building a modern greenhouse equipped with LED lights, O2 and CO2 monitors, and ventilation systems is a costly enterprise. Additionally, CEA requires a constant supply of electricity, which is both expensive and poses environmental risks. Even greenhouses powered solely by renewable energy create challenges: solar panels, for instance, are expensive. Further, using solar energy to simulate sunlight for indoor crops seems convoluted, especially considering that outdoor crops simply use free, natural sunlight. CEA also requires space. In urban areas, where CEA offers great potential, real estate is especially expensive.

The many costs of CEA often translate to higher prices for consumers, especially for commodity crops. For instance, producing a loaf of bread with CEA-grown wheat costs roughly $11. Currently, CEA is most economically viable for expensive, highly perishable specialty crops, such as tomatoes and lettuce, grown on a large scale.

Investment Opportunities

Although CEA is not set to replace traditional agriculture in the near future, investors are nevertheless exploring CEA’s potential for feeding our growing population sustainably. There exist several private fund investments in the space. Ceres Partners, for instance, is investing in greenhouses, aquaculture, and specialty crops as well as CEA artificial intelligence systems. Equilibrium Capital, a sustainability-focused investment company, manages an extensive CEA private equity fund platform.

An exciting new investment opportunity in this area is Global X AgTech & Food Innovation ETF – KROP, first listed on Nasdaq in July of 2021. KROP identifies and invests in trailblazing companies in the food and agriculture sectors. The focus of these companies ranges from food waste minimization to agricultural robots to dairy alternatives to CEA. KROP has only $2.3 million under management today, but we will continue to monitor its development as a potential purposeful investment in the essential food and agriculture sector.

As the global population continues to grow, nature’s unpredictability poses a hazard to the traditional agricultural system. Boasting efficiency and reliability, CEA offers a promising niche complement to traditional outdoor agriculture and an exciting opportunity for sustainable innovation for the benefit of humanity and the planet. To learn more about sustainable, ethical investing, contact Servant Financial today.

Promises and Pitfalls: the Uncertain Future of Carbon Credits

Modern-day Americans enjoy a standard of living that our forebears could only have dreamed of. Cell phones and computers, ready-made clothes and food, airplanes, microwaves, and air conditioning contribute to our convenient, comfortable existence. We can access food, transportation, friends, and entertainment with a few choice taps of a handheld screen. Still, our easy modern lifestyle has drawbacks. Although we no longer rely on bodily energy to heat our houses, travel, and obtain food, these activities nevertheless require energy—mechanical energy. Today, humans benefit from the convenience of an industrialized world… but at what cost?

5.1 billion metric tons. That’s the amount of energy-related carbon dioxide the US emitted in 2019 alone. Carbon dioxide, or CO2, is a greenhouse gas. Like methane and nitrous oxides, CO2 traps heat in earth’s atmosphere—the so-called “greenhouse effect” keeps our planet warm and hospitable for life. However, many scientists suspect that the rise of human industry, especially in the past two centuries, has unnaturally elevated atmospheric CO2 levels, which, in turn, result in climate change.

CO2 levels over time

Rising ocean levels, droughts, and severe storms are just some of the phenomena attributed to climate change, a controversial issue, to say the least. While some experts believe that climate change poses a dire threat to our planet, others are more reserved. These climate change “skeptics” do not necessarily deny climate change; rather, they believe its severity and its connection with CO2 levels are exaggerated.

However one views the climate controversy, all can agree that climate change is an influential political issue. Intent on mitigating the “climate crisis,” activists are targeting all areas of human activity in the name of the environment. Business and industry, closely tied with fossil fuels and greenhouse gas emissions, are an especial focus. Environmentalists have proposed numerous plans to regulate, limit, and improve industry with the ultimate goal of net-zero emissions. One particular strategy, although still nascent, is gaining prominence: carbon credits.

What are Carbon Credits?

Harnessing the power of markets, carbon credits incentivize businesses to reduce greenhouse gas emissions. A carbon credit, also known as a carbon offset, is a license to emit one metric ton of CO2 or the equivalent amount of another greenhouse gas. Based on its size and nature, a business receives a certain number of carbon credits. If a business desires to emit more CO2 than its credits permit, that company must purchase subsequent carbon credits. Conversely, should a business emit less CO2 than its allocated carbon credits allow, the company may sell its unused credits. Furthermore, businesses which actively engage in carbon sequestration (for instance, by planting forests, reducing tillage, or implementing crop rotation) are awarded carbon credits. In this way, businesses are penalized for increasing emissions and profit from reducing emissions.

Currently, participation in the carbon market is voluntary.  Committed to achieving net-zero emissions, numerous corporations—including IBM and JPMorgan Chase—are purchasing carbon credits through Indigo Ag’s carbon marketplace. Indigo not only advises farmers as they implement carbon sequestration but also verifies the efficacy of these methods by analyzing agricultural data and soil samples. Successful sequestration produces verified agricultural carbon credits. When eco-conscious companies purchase credits through Indigo’s marketplace, farmers profit. Other groups at the forefront of the carbon offset initiative include Nori, a carbon marketplace similar to Indigo, and Verra, which develops standards for awarding carbon credits.

Iowa farmer sequesters CO2 for cash through Nori

Many climate activists envision a compulsory carbon market, known as a compliance market. In this scenario, the government mandates and regulates the carbon market in a cap-and-trade system. Government officials allocate carbon credits, oversee their trade and creation, and certify that businesses comply with emissions requirements. Select jurisdictions, including California and Europe, have already implemented partial compliance markets for certain companies or industries.

Controversies and Concerns

Like the problem it proposes to solve, the carbon market is controversial. Most obvious are the logistical issues: in a compliance market, how will carbon credits be allocated? Will individuals or only companies be compelled to participate in the market? How will carbon pollution be measured? Must every pollution-producing activity, no matter how minuscule, be reported to government regulators? How will startups be treated? Will carbon credits cripple innovation? Cheating is also a concern. Selling phony carbon credits, underreporting carbon emissions, and double-counting carbon sequestration practices are just some of the many opportunities for dishonesty.

Additionally, some environmentalists argue that carbon credits will actually harm the environment by taking the onus off of major polluters. Rather than compelling large corporations to reduce their personal carbon emissions, the carbon market allows them to take credit for the carbon reduction of others. Why should companies change their reliably profitable practices when carbon credits allow them to keep polluting for a small fee?

Furthermore, is agricultural carbon sequestration actually effective? Studies measuring CO2 levels only in the soil’s upper inches produce optimistic findings; when scientists dig deeper, however, the results are less encouraging. Several comprehensive studies show that no-till methods merely change the distribution of CO2 in the soil—more CO2 is stored in the upper layers than the lower layers—rather than sequester more total carbon. Other scientists are skeptical of the benefits of cover crops, which may actually induce microbes to release carbon from the soil into the atmosphere.

Although their prudence and efficacy remain uncertain, carbon credits are indicative of the larger ESG investing trend. Eco-conscious companies, policymakers, and investors are turning to markets to encourage responsible business practices and forge a sustainable future. To learn more about investing with purpose in ESG, contact Servant Financial today.

Soak Up the Sun — Investing in Solar Power

Solar photovoltaic (PV) energy is 2020’s fastest growing renewable energy source. According to the National Renewable Energy Laboratory, the United States installed a record-high 7.2 gigawatts (GW) of direct current PV in the first half (H1) of 2020, up 48% from H1 in 2019. Gains in the solar industry are making PV power sources increasingly competitive with fossil fuels.

The solar utility sector saw more growth than the commercial and residentials sectors in 2020. Solar in the utility sector saw 89% year-over-year growth in H1 2020. Commercial sector PV installations decreased 14% and residential PV installations were relatively flat. 

Almost 60% of US PV capacity installments this year took place in California, Texas, and Florida. Environment America’s Shining Cities 2020 report found Honolulu has the highest solar PV installed per capita, with 840.88 watts per person in 2019. Los Angeles leads the nation in total installed solar PV capacity, with 483.8 MW by the end of 2019. 

Solar energy provided about 2% of the total electricity produced in the United States in 2019. Last year, the solar industry employed around 250,000 people and generated $18.7 billion of investment in the U.S. economy. The country has over 85 GW of installed solar capacity, enough to power 16 million homes. 

U.S. electricity generation from renewable sources
U.S. Energy Information Administration

Solar power is now one of the cheapest sources of electricity. In the past decade, the solar industry has seen a 90% drop in the cost of solar modules. From 2010 to 2019, electricity costs from large-scale solar PV installations dropped from about $0.38 per kilowatt-hour to $0.07 per kilowatt-hour. 

Despite higher upfront installation costs, solar power is less expensive than carbon-based power in the long-run. The cost of a residential solar system depends on its geographic location, size, and brand. Installed residential solar systems in the U.S. have an average price of $2.57 per watt and total costs ranging from $10,250 to $12,528 after the solar Investment Tax Credit (ITC)

The ITC is a 26% tax credit for solar systems on residential and commercial properties. Since the implementation of the ITC in 2006, the U.S. solar industry grew by more than 10,000%. Furthermore, the industry saw an average annual growth of 50% over the last decade alone.

U.S. tariff policy also plays an important role in the success of the solar industry. According to the Congressional Research Service, 98% of solar cell and module production occurs outside of the United States. The cost of imported panels has decreased significantly, enabling record-high levels of solar imports despite continued tariffs: 14.2 GW of PV modules and 1.3 GW of PV cells in H1 2020.

These leading five markets collectively installed 24 GW of PV in the first half of 2020, approximately the same level as in 2019 (NREL 2020 Solar Industry Update)

Gains for solar in the early 2020 stock market diminished with the COVID-19 induced economic downturn in March. At the time, the solar sector experienced stronger than expected demand and good financial performance from companies. Consequently, solar stocks outperformed the rest of the market.

According to the MAC Global Solar Energy Stock Index, solar stocks bounced back since spring 2020 due to affordability, the viability of solar-plus-storage, and Joe Biden’s apparent presidential victory and clean energy agenda. Bloomberg New Energy Finance (BNEF) forecasted U.S. solar installs in 2020 will grow by +21% to 13.4 GW.

The Invesco Solar ETF (TAN) represents  solar stock performance very well. In September 2020, TAN outperformed the broader market with a total return of 77.3% over the past year. In comparison, the Russell 1000 Index saw a total return of 13.8%. Expectations about Joe Biden’s election victory and increased investment in renewable energy drove TAN up over 120% from the beginning of 2020 to date.  

Sunrun (RUN) and Tesla (TSLA) are the largest solar installation companies in the United States. Sunrun spiked over 300% this year and acquired Vivint Solar for $3.2 billion in July a deal that merged the nation’s two largest rooftop solar companies. 

Companies' % of Residential Installs
Source: Corporate filing, SEIA/Wood Mackenzie Solar Market Insight Q3 2020 (NREL 2020 Solar Industry Update)

In June 2020, Tesla announced they will deliver the lowest price for solar of any national provider with a price-match guarantee. The company currently charges $1.49 per watt of solar on existing roofs and installed over 3.6 GW of clean solar energy across 400,000 roofs—the equivalent of 10 million traditional solar panels

Tesla CEO Elon Musk expects Tesla Energy to eventually grow to the size of Tesla Automotive. Musk believes energy storage will play a key role in that process. “In order to achieve a sustainable energy future, we have to have sustainable energy generation… so you need to have a lot of batteries to store [renewable] energy because the wind doesn’t always blow and the sun doesn’t always shine.” 

Tesla’s lithium-ion battery energy storage business has a new publicly traded competitor, Eos Energy Enterprises. Eos developed the Znyth® aqueous zinc battery to “overcome the limitations of conventional lithium-ion technology.” Eos promotes their Znyth® battery as a more sustainable, scalable, efficient, and safer energy storage alternative to lithium-ion batteries.

Solar Power’s Bright Future

Solar power converts sunlight into electricity. It is a clean energy alternative to fossil fuels, with a smaller environmental impact and carbon footprint. Solar panels are most effective in direct sunlight. However, they can still generate electricity in cloudy weather or cold temperatures. 

The sun is a promising energy source that can produce billions of years of electricity. On the contrary, fossil fuels are finite resources that could be used up within the next few centuries. The U.S. Energy Information Administration estimates the United States has enough dry natural gas to last about 92 years and enough recoverable coal reserves to last about 357 years.   

Greater investment in solar power can lead to greater national energy independence and less dependence on foreign fossil fuels. There are plenty of regions in the US, especially the Southwest, with sufficiently  high annual percentages of sunlight. 

Individual homeowners can attain a degree of energy self-reliance by buying into solar for its increasing efficiency and decreasing costs. Many solar array warranties cover about 25-30 years and arrays often last longer due to their durability. The median average photovoltaic degradation rate is a 0.5% loss of energy efficiency per year, so the solar panels on a roof could still be operating at 88% of their original capacity after a 25-year warranty. 

According to EnergySage, the typical solar panel payback period in the U.S. to break even on a solar energy investment is 8 years. After 20 years, a solar panel investment on your home or business can accrue savings ranging from $10,000 to $30,000. 

Solar’s Dark Side

Solar power is an intermittent energy source because the sun does not shine at all hours of the day. The intermittent nature of solar power makes it a non-dispatchable energy source. This means the electricity produced cannot be used at any given time to meet electricity demands. 

Electricity storage solutions address the intermittent nature of renewable energy like solar, wind, and wave power. MAC Solar Index believes solar-plus-storage will become even cheaper in coming years. Lithium-battery prices already dropped by 85% from 2010 to 2019. MAC predicts they will drop by another 52% by 2030.

Kauai Island Utility Cooperative solar plus storage plant
Kauai Island Utility Cooperative solar plus storage plant (PV Magazine)

Photovoltaic cells contain rare earth metals like cadmium, gallium, and indium. These metals are limited resources  their extraction for solar panels and other electronics must be carefully monitored in order to prevent total depletion.  

Solar modules are hard to recycle. Their components including plexiglass, metal framing, wires, glass sheets, and silicon solar cells must be separated in order to be recycled. This is a tedious process that requires advanced machinery. Complexity and cost increase the risk that a landfill becomes a solar panel’s final resting place. 

Improper disposal and breakage of solar panels can cause toxic chemicals like lead and cadmium to leach into the soil.  The International Renewable Energy Agency (IRENA) in 2016 estimated there was about 250,000 metric tonnes of solar panel waste in the world at the end of that year. 

IRENA projected solar waste could reach 78 million metric tonnes by 2050. Many experts are pushing for mandatory recycling of solar panels to curb future solar panel pollution. The cost of the recycling process currently exceeds the value of the materials that would be recovered. Policies that ban or incentivize solar recycling will be critical to the long term sustainability of solar operations. 

Soak Up the Benefits of Solar Power and Invest in Solar Energy

If you’re looking to invest in solar energy, TAN is the best pure solar ETF. To invest in solar and other clean energy companies, the ALPS Clean Energy ETF (ACES) suggested in our previous blog continues to be our favorite diversified renewable energy play.

For those wanting to invest closer to home, you can install solar panels on your own roof. Residential solar is a sustainable energy option that can increase the value of your home. In addition, solar panels pay for themselves after approximately 8 years of savings. Calculate how much you can save with solar here

How Does Community Solar Work?
Clearway Community Solar 

If you don’t want to install solar panels on your home, consider subscribing to a community solar project. Subscribers receive cost-reducing community solar credits on their electric bills for the renewable power produced. 

Trajectory Energy Partners and Clearway Energy is one such community solar project that offers Illinois residents with a ComEd or Ameren electric bill a 20-year community solar contract with no upfront investments. The program helps subscribers support local renewable power operations and save up to 50% on annual electricity supply costs. 

The future of solar energy is bright. Solar power is an indispensable element of the transition to a net-zero carbon emissions future. Solar energy’s marginal cost of production is zero we simply need to capture its rays. By letting solar PV soak up the sun, the more sparkling our environment will be for future generations.


To talk more about investing in solar, or other investment opportunities, contact us today. Together, we can find the right investments for you, the ones that align with your values and help you to reach your financial and life goals.

Go with the Flow — Investing in Hydropower


What is Hydropower?

Hydropower is a type of renewable energy that uses the force of flowing water to produce electricity. Its energy comes from the water cycle: the continuous movement of water on, above, and below earth’s surface.

Hydropower is a renewable technology because it captures naturally occurring energy from the water cycle and produces electricity without reducing or using up water. The marginal cost of production for hydropower — and renewables like solar, wind, and geothermal energy — is zero.

Check out this 3-minute video on hydropower.

The most common type of hydropower production is an impoundment facility. Impoundment dams hold river water until its release through a turbine that activates a generator and produces electricity. The U.S. has over 90,000 dams, yet only 3% are active hydropower facilities. The majority of dams in the United States were built for irrigation or flood control purposes.

In 2019, conventional hydroelectricity’s generation capacity in the United States was 79,746 megawatts (MW) — or about 80 million kilowatts. This is enough electricity to fuel 32 million homes a year. The state of Washington produces the most energy from impoundment. It is home to the Grand Coulee Dam, the largest U.S. hydropower facility. The dam is also the largest U.S. power plant in generation capacity.

Dams are controversial because of potential harmful environmental impact. They destroy carbon sinks in wetlands and oceans, deprive ecosystems of nutrients, reduce biodiversity, cause habitat fragmentation, and displace poor communities. Fish ladders — a series of ascending pools that allow fish to circumvent a dam — are a solution to impoundment facilities that would otherwise hinder the migration of species like salmon up and down rivers.

Another type of hydroelectric power is diversion, also known as a run-of-river facility. This method diverts part of a stream through a canal or penstock. The water then spins a turbine and produces electricity before rejoining the main river. The typical capacity of a diversion facility is less than 30 MW.

Both small individual operators and large utilities own run-of -river facilities. In some cases, large utilities view these facilities as low value assets due to old equipment, inefficient operations and low power prices.

Pumped storage facilities store energy for later use by pumping water uphill when electricity is cheap to a reservoir at higher elevation. When there is high electricity demand, they release water to a lower reservoir and through a turbine to generate electricity.

Hydro operations can operate under federal, public, or private ownership. There can also be public-private and public-federal partnerships. Federal agencies operate about half of the total installed hydropower capacity in the U.S.


Hydropower accounts for around 6.6% of the electricity generated in the United States. Hydropower was the nation’s largest source of renewable energy until wind power surpassed it in 2019. According to the U.S. Energy Information Administration, total annual electricity generation from utility-scale non-hydro renewable sources (wind, solar, biomass, etc.) has been greater than hydropower generation since 2014.

Total renewable energy resources represent 17% of U.S. electricity generation. Dirty coal still represents 23% of generation and is a major contributor to greenhouse gases. Renewable energy sources are poised to take coal’s market share aided by technological advances in energy storage.


Advantages of Hydropower

Hydropower offers the lowest levelized cost of electricity across all major fossil fuel and renewable energy sources. Hydro is a reliable, cost-effective energy source due to low-maintenance equipment and longer facility lifespans that amortize significantly large upfront capital costs over time.

The total conversion efficiency of a hydropower plant ranges between 90-95%. Conversion efficiency is the useful energy output divided by the energy input. For hydro, it is the hydroelectricity output divided by the kinetic energy of flowing water input. Hydropower’s conversion efficiency is greater than the conversion efficiency of both wind and solar, with wind at a rate of about 45% and solar at 25%.

Hydropower has high diversification potential with other renewable energies. A portfolio with hydro, wind, and solar energy that is diversified across energy sources and regions can have a stabilizing effect on asset portfolios.

Hydroelectric facilities provide baseload power; they run continuously to meet the minimum level of power demand. This consistency makes hydropower complementary to intermittent renewables like wind and solar that can only generate electricity when the sun is shining or the wind is blowing. Hydropower depends on the more reliable flow of water to help meet baseline electricity demands while other renewables can supply peak demands.

Hydropower and Renewable Energy Storage

The push for decarbonization through renewables will require innovation in energy storage technologies that addresses the intermittencies of wind and solar energy. While pumped-storage hydropower accounts for 95% of U.S. utility-scale energy storage, lithium-ion battery storage has seen tremendous growth. The price of lithium-ion batteries has fallen by about 80% over the past five years, enabling the integration of storage into solar power systems.

NREL’s Renewable Electricity Futures Study estimated that if 80% of the United States’ electricity is powered by renewables by 2050, 120 gigawatts of storage would be needed across the nation. The U.S. currently has 22 gigawatts of storage from pumped hydropower and 1 gigawatt from batteries.

Another opportunity looming on the hydro horizon is the potential coupling of hydropower and Bitcoin mining. Bitcoin mining lacks an eco-friendly reputation as an energy-intensive process with a large carbon footprint. However, this can change if miners use electricity from renewable sources.

Much like energy storage utilizing lithium-ion batteries, Bitcoin and other cryptocurrencies are an energy storage technology. Converting energy into bitcoins and storing it for future purchases can help contribute to the storage needed for the renewable energy revolution.

Bitcoin miners can choose their location based on the cheapest cost of electricity. Cheap electricity happens to come from cleaner baseload energy sources like hydro, geothermal, and natural gas. If Bitcoin miners settle near renewable energy plants, they could reduce their emissions and soak up extra energy that would go to waste.

Go with the Flow — Investing in Hydro

Current trends show wind and solar energy assets are more frequently represented in institutional investors’ portfolios than hydropower assets. Hydropower facilities tend to have high upfront costs, complex installation processes, and absence from the market due to a history of public ownership and project sponsorship. These are some of the factors that create a scarcity of hydroelectric investment opportunities.

Brookfield Renewable (BEPC: NYSE) is one of the world’s largest investors in renewable energy. Its strong ESG practices support global decarbonization and create long-term value for stakeholders. In addition, it is geographically and technologically diversified.

There is 19,300 MW of renewable capacity located across North America, South America, Europe, India, and China. Hydro represents 7,900 MW (53% in U.S. & Canada), or 41% of capacity, followed by 4,700 MW of wind (52% in U.S. & Canada), 2,600 MW of solar, and 2,600 MW of energy storage and distribution assets.

Brookfield has an investment grade, BBB+ balance sheet. It has diverse, high-quality cash flows and a strong financial position. In effect, it can pursue growth opportunities and make distributions to shareholders. Brookfield targets annual equity deployment of $800 million in high-quality assets.

Their investment strategy involves acquisition and development of high-quality renewable power assets and businesses below intrinsic value. They also recycle capital from mature, de-risked assets, optimize cash flows through operating expertise to enhance value, and finance businesses on an investment grade basis.

Brookfield partners with governments and businesses to achieve their decarbonization goals. It has an 18,000 MW development pipeline diversified across multiple technologies and geographies, including approximately 2,400 MW under construction.

Since 2012, Brookfield EPC has grown its annual distribution by 6% compound annual growth rate. Brookfield expects to continue distribution growth by 5% to 9% annually. In addition, they deliver total returns of 12% to 15% to unitholders over the long-term.

Brookfield is the best way to go with the flow on the decarbonization megatrend and invest in the inevitable transition to renewable hydro, wind and solar energy.


To talk more about investing in hydropower, or other investment opportunities, contact us today. Together, we can find the right investments for you, the ones that align with your values and help you to reach your financial and life goals.