This article is taken from Investment Week, where Intelligent Partnership’s research was highlighted. Read the full article here

Alternative energy investing is often perceived as an area only for extreme tree-huggers and climate doom-mongers. In fact, nothing could be further from the truth, as demonstrated by the $2.5bn investment made in solar projects at the end of 2012 by Warren Buffett’s MidAmerican Energy Holdings in the US.

Investors of all kinds are beginning to look at ways to include alternative energy projects within their portfolios.

Investors looking for opportunities less correlated to the broad markets and with the potential to provide an inflation hedge should find the steady returns possible from project investments of interest.

While the output is variable from alternative energy projects like wind farms or solar parks, it is relatively predictable over the long run.

Moreover, investors are recompensed for this variability in output by government guaranteed inflation-linked prices for all the electricity that can be produced. There are few investments offered today that have the potential for 10% plus returns and are also underpinned by government or utility credit.

Investing in alternative energy is not and has not been without its pitfalls. Where investors need to be wary is in differentiating between the types of investments available in the alternative energy sector.

Investments in alternative energy project companies are lower risk, with most of the risk taken in the permitting, design and construction phase which can be mitigated by well constructed contracts.

Investments in companies that manufacture alternative energy equipment have the potential to grow dramatically but are much more vulnerable to subsidy changes and competitive pressure on pricing.

While there are many attractive investments on the manufacturing side, we think that area is still more appropriate for investors who are speculative and have a long-term perspective. The potential returns are much higher, but so is the risk.

On the other hand, the generation of alternative energy offers attractive but lower returns for more conservative investors. Generation from alternative energy encompasses windfarms, solar parks, biomass boilers, anaerobic digesters, hydroelectric plants, geothermal plants, tidal barrages, and wave power installations.

For most of the types of plant, the equipment has been installed and tested widely, the process is relatively uncomplicated and the ‘technology’ risk associated with alternative energy projects is similar to the technology risk for new coal, gas and nuclear power stations.