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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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The Most Innovative Companies In Renewable Energy

As the oil price bust continues, renewable energy and sustainability innovation is continuing unabated. For instance, an architecture company recently unveiled a set of plans for a smart floating farm project that helps preserve land space and improve food production efficiency. The plans are just hypothetical at this point and it is unclear if they will ever be built, but that’s not really the point. The project shows that, around the world, companies and individuals continue to devote time and resources to innovation in sustainable living.

In a similar vein for instance, in the solar field, small companies are creating a host of new innovative products like new inverters and module level electronics. Many of these innovations may seem trivial and iterative. And many are, but a series of trivial and iterative innovations can still lead to big change and that has solar proponents excited. Related: What’s Really At Stake With The Iran Nuclear Deal

Big changes are also occurring on more visible systems. A company called Ripasso Energy is pushing its new, more efficient solar generators. In a highly visible effort, Tesla is pressing ahead with its home and business battery storage systems. Desalinization with solar and even solar planes are also on the horizon.

The vast majority of these innovations are too early stage for investors to make serious bets on, and even if an investor could be in on an individual technology, that approach is risky. Instead, investors are better off putting their dollars into firms that consistently show an innovative spirit and are pressing forward with a broad portfolio of product innovations. These kinds of broad sets of innovations are important to the future of the planet and they can generate serious returns for sage investors as well. Related: Russia’s Natural Gas Plans May Be Little More Than Hype

Among the companies investors should keep an eye on are well-known firms like CREE and SolarCity. CREE and SolarCity both are truly disruptive companies that are upending enormous industry verticals and while both stocks are richly priced, in the long run, they will likely grow into their valuations over time. The key to that growth will be a continued track record of innovation.

But lesser-known firms like Mueller Water Products (MWA) and Rexnord (RXN) are also good for investors to consider. Mueller and Rexnord are both in the water efficiency industry. This is a critical industry that does not get a lot of attention, but it is probably going to become more and more important as time goes on. The companies specialize in products for water efficiency from filtration systems to smart meters and leak detection systems. Related: Could This Be The Next Great Renewable Energy Source?

Environmentalists and energy investors spend most of their time talking about pure play renewables firms like SolarCity or oil companies like Continental, but a lot less time talking about the equally important side of the green revolution – water efficiency. As companies, people, and governments around the world move to become greener and more energy efficient, they will also likely look to improve water efficiency. Indeed, in some cases this may be a forced decision resulting from climate change as in the case of California. Mueller and Rexnord both stand to benefit here.

Again, as with CREE, Solar City, and many of the small privately held firms that are advancing innovation across the country, the key consideration for investors with MWA and RXN is to look at the products the firms are offering and how those products can upend the existing marketplace.

By Michael McDonald of Oilprice.com

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