Advice provided by: Rob Freeman Jr, LEED AP, Green-Buildings.com

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A new real estate investment trust (REIT) will be taking an alternative approach to green building investing. The strategy of CleanTech REIT is to focus on investing in properties that produce renewable energy such as solar, wind, geothermal and hydroelectric. These renewable sources of energy are expected to become more viable economically as fossil fuel prices continue to increase in the U.S. as they have recently. Indeed, some predict prices in renewable energies to achieve parity with those of fossil fuels to occur as early as 2015.

Geothermal, Wind, Solar and Hydroelectric Power Plants

Geothermal heat is constantly radiating from our planet's core. Some of this heat reaches the surface of the Earth and, in large scale geothermal power plants, this energy can be captured and used to drive steam turbines to produce electricity. The U.S. is the largest producer of electricity from geothermal sources (although it is only a tiny fraction of all the electricity we actually use). In theory, this REIT should have a large range of options in terms of investments in this area, however, some geographic regions lend themselves to geothermal power plants much more than others, such as in Iceland, because the Earth's heat is closer to the surface.

As the sun is expected to be around for at least another billion years, it seems reasonable that the use of solar energy will only increase in the U.S. Over the past few years, available solar power has been increasing at approximately 40% per year while the cost per kilowatt hour has been dropping. A recent report from Clean Edge indicates that as solar technologies and the products that exist to finance them improve, while perceived risk falls, solar energy will increase to 10% as a percentage of the energy consumed in the U.S. by 2025. Because abundant sun is concentrated in certain parts of the U.S., expect the vast majority of investments to be located in sunbelt states such as California and Arizona.

In the U.S., approximately 7% of our electricity comes from hydroelectric power. The majority of this power comes from hydropowered generators at dams. There are a variety of other promising technologies that harness the energy from tidal power, such as tidal fences, turbines and barrages, however, expect the REIT to focus on any new opportunities for additional dams that may be built with hydro power as well as coastal developments that harness wave energy, also called "wave farms".

The U.S. has the largest installed capacity of wind power of any country, but as a percentage of our total energy consumption it equals only 2%. Wind power is available large scale wind farms, small scale wind power installations and offshore wind power. Wind power in the U.S. has been growing at rates of 15-50% per year for the past five years and some industry professionals, such as turbine developers, believe that electricity generated from wind could increase to as much as 30% by 2030.

Not surprisingly, according to an interview with Crains, Beth DiSanto, the REIT's general counsel, indicates that CleanTech REIT is not focused in any geographic or technology area, as that would be extremely limiting, I imagine.

Other REITs that have focused on specific investments that blend particular technologies and real estate are Digital Realty Trust (DLR) a REIT that builds, buys and operates data centers and Green Realty Trust, a REIT that focuses on investing in high performance buildings, such as those certified by Energy Star and LEED.

Hopefully, incentives that exist for renewable energies will continue to be available, which should boost the returns of the REIT and, accordingly, those of investors. The challenge that exists in the U.S. is that CleanTech REIT is really investing in the equivalent of fifty different energy markets, as opposed to one. This is because of the lack of consistency at the state level when it comes to incentives for renewable energy technologies. Solar power and real estate are becoming more tightly linked in states with aggressive renewable energy incentives, such as New Jersey, through nascent specialties such as the Building Integrated Solar Photovoltaic (BIPV) market.

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