Home Feature Beyond Stocks and Bonds – Exploring Energy as an Alternative Investment

Beyond Stocks and Bonds – Exploring Energy as an Alternative Investment

July 2, 2025

Energy as an Alternative Investme

SHALE Exclusive by Derrick May, President and CEO of Optimum Energy Partners LLC.nt

Overview:

As markets shift and traditional investments face volatility, clean and renewable energy sources are emerging as a powerful alternative asset class. In an attempt to diversify portfolios, investors are turning to wind, solar, hydrogen, and geothermal energy. A lot of the transition is owing to increasing environmental concerns. New opportunities in the energy sector are increasing as impact-driven investment gains momentum. There is indeed a promise of long-term rewards and sustainability that makes energy a compelling choice for investors.

Fueling the Future: How Clean Energy is Transforming Investment Portfolios

Alternative energy has become a household term across every corner of the United States. Harnessing the power of wind, sunlight, hydrogen fuel, and geothermal heat offers both global sustainability and cost-effective investment opportunities. These renewable resources are rapidly gaining momentum, steadily moving toward a future where they will replace traditional fossil fuels like gas, oil, and coal.

This switch to alternative energy has become a major investment strategy among publicly traded corporations, even beyond traditional stocks and bonds. In the past, investors could find and achieve sufficient diversity in their portfolios from stocks, bonds, and cash alone. However, the market has undergone a significant evolution based on the research, public awareness, and values of today’s society.

Because of this evolution, investors are no longer interested in traditional stocks and bonds. They cite the primary reason for market volatility, as stocks are declining from much higher levels, mainly due to today’s bear markets. Of course, other reasons exist, such as international corporate relationships and higher inflation rates.

Thankfully, alternative forms of investment exist that offset the ever-changing nature of today’s markets, such as venture capital (VC), private equity, and hedge funds. Private energy investments are also making their way to the forefront of priorities among serious investors looking to expand their portfolios and improve their return potential.

Energy’s Investment Evolution

Examining the key distinctions between traditional and alternative investments reveals three critical factors: risk levels, potential returns, and liquidity options. Each characteristic fundamentally shapes how these investment classes behave in a portfolio.

Risk and Return

Traditional investments are typically less risky, as bonds translate to steady income based on returns on investment (ROI). In other words, the risk is low because investments are not prone to breaking anyone’s bank, but there are returns, nonetheless. On the other hand, alternative investments translate to higher returns, but they come with a greater possibility of capital loss. Since the entire idea behind investment is to achieve capital gains, this poses a greater risk to a serious investor.

Liquidity

There are also differences in liquidity, as traditional investments are usually more liquid than alternative investments, with a cash conversion ratio (CCR) being much quicker. While traditional investments, such as stocks and bonds, can be converted to cash instantaneously, alternative investments, such as private equity (PE), usually take several months. Thus, alternative investments also contain certain flaws, with less liquidity and slower CCR.

Energy’s Role in Alternative Investment Portfolios

With energy now as an alternative investment, it plays a crucial role in an investor’s overall portfolio. Not only does it offer diversity to their name, but it has the potential to generate higher returns than ever before. This shift is driven by the fact that many corporations are focusing on the future and see energy as a promising alternative to traditional fossil fuels.. While risk is involved, modern society’s business markets have come to rely on and even cater to alternative investments, providing investors with a sense of confidence that they will earn a profit.

Additionally, some alternative energy sources have the capabilities of tax-free investment, or at least tax-deferred. The tax code has allowed for tax deductions from an investor’s primary income that will go towards energy development. This benefit, known as the Investment Tax Credit (ITC), allows taxpayers to deduct about 30% of their investment in clean, renewable energy from their federal taxes.

The Changing Global Energy Market

Since renewable energy has taken precedence over traditional stocks and bonds, the transition has impacted private investments as well, persuading investors to now rely on the global energy market. This shift has undergone such high demand that investors could reach a point where alternative energy investment is a general component of their portfolios.

Also, energy security has become more necessary than ever before, with a higher demand making the energy market more vulnerable and sources less available. Fortunately, oil and gas opportunities are also at an all-time high, allowing investors to find a balance between alternative energy and traditional oil and gas with the options in front of them.

For instance, amid the Ukraine war, fossil fuels have swiftly returned to protect limited energy resources. This situation highlights the crucial role of energy security in supporting the transition to alternative energy, including the use of hybrid solutions like renewable power and other low-carbon options. Nonetheless, alternative energy remains in the foreseeable future, so energy security must be air-tight when considering investments.

Energy as an Alternative Investment — Image source- Pexels

Energy Investment Categories Beyond Public Markets

With alternative energy comes the opportunities for growth and an array of obstacles that exist when investing in private equity (PE) and venture capital (VC) in energy.

Private Equity and Venture Capital in Energy

Opportunities lie in reducing harmful emissions and replacing them with clean energy through transportation, infrastructure, and environmental sustainability. For example, solar energy investment has achieved great success in the last few years, dropping 85% in its total cost and continuing to grow outwardly. This presents an even greater opportunity to continue accelerating the clean energy transition, with PE and VC funding early-stage renewable technologies. They also both generate larger capital for different energy types, which is sustainable for investors and also more economical.

One recently successful energy startup in particular is Ara Partners, a private equity platform that aims to decarbonize the economy worldwide. Founded in 2017 and located in Houston, Texas, Ara Partners’ number-one investment priority is focusing on electric power as the remedy to the global climate crisis. It offers a win-win situation, not only earning profit, but also minimizing carbon emissions and fostering environmental sustainability.

Energy Infrastructure Investments

Energy infrastructure investments have also played a role in private funding for grid modernization and energy storage. By modernizing the power grid, corporations can upgrade infrastructure, utilizing sustainable energy sources and maintaining their renewability. They must simultaneously be balanced with existing aspects of infrastructure, utilizing fossil fuels or energy storage, and become more profitable, secure, and dependable. This approach allows existing infrastructure—such as pipelines, transmission lines, and refineries—to continue generating returns while supporting the transition to modern energy systems.

Carbon Markets and ESG-Driven Investments

In addition to infrastructure, venture capital, and private equity, environmental, social, and governance (ESG) factors have become central to modern business strategy. Even if companies did not originally focus on sustainability, they must now prioritize environmental concerns, especially in terms of regulations and financial implications. If they want to eliminate toxic emissions, they will need to rely on carbon credits, which, once purchased, signify the prevention of one metric ton of carbon dioxide from penetrating the atmosphere or the removal of an existing one. Carbon credits are both an impact and ESG-driven investment, as purchasing them helps to achieve sustainability objectives or at least follow regulations in place, impacting the community.

Investment Strategies and Risk Considerations

Along with various investment strategies, alternative energy investors should be aware of certain risks. Among these are risk-return trade-offs, methods of diversification, and the ever-evolving use of technology.

Risk-Return Trade-off in Energy Investments

Investors apply the risk-return strategy across many areas of business, not just renewable energy. Its concept follows the analogy of low risk equals low reward, and high risk equals high reward, as briefly discussed earlier. When it comes to alternative energy, they must carefully weigh the risks and rewards of traditional approaches versus newer, emerging options.

For instance, the volatility in oil and gas prices can be a hindrance, but it is not unusual. Because these price fluctuations tend to correct over time, the associated risk is relatively low. However, the potential reward is also limited, since price drops often coincide with reduced demand. As a result, turning a profit from an oil and gas investment becomes more challenging.

On the other hand, renewable energy is known to offer long-term stability, which is a high reward without a doubt. However, this stability comes at a price, and typically an expensive one, as initial costs are typically high. On top of that, energy storage makes accessibility to clean energy far more rigid because of preservation tactics. Not to mention, there will always be political and regulatory risks in energy projects as well.

Diversification Strategies

These risks are why investors may find that compromise is a favorable route to take. Combining traditional and alternative energy investments ultimately gives investors a wider range of opportunities, enabling them to tap into different markets and diversify their portfolios. This would be a classic case of having the best of both worlds. While taking advantage of the new landscape of alternative energy, investors may also strike a balance by maintaining familiarity with traditional methods of energy investment.

Technological Innovations Driving Investment Decisions

Lastly, artificial intelligence (AI) has become one of the most utilized forms of technology in today’s society. It has arrived at the doorsteps of nearly every corporation as a means for businesses to stay modern and find success in the evolution of technology. One example is how automation has played a more significant role in energy efficiency investments. Automation contributes to productivity, allowing businesses to improve efficiency, reduce costs, make safety improvements, and make decisions based on data that analyzes energy production.

There are also emerging technologies, such as next-generation nuclear plants, that generate clean hydrogen faster and at a lower cost. In fact, nuclear energy could be a driver in accelerating an economy that primarily utilizes clean hydrogen, serving the environment well by decarbonizing traditional energy markets.

The Future of Private Energy Investments

The future has arrived, and so have newer methods of investing in alternative energy through private equity, venture capital, a hybrid between traditional and renewable energy sources, and technological innovation. As the emergence of novel forms of technology and alternative energy continues, investors will witness an evolving landscape of investment opportunities. They will need to carefully weigh the risks and potential rewards in private energy ventures to strike the right balance.

If they have not already, investors should start thinking beyond stocks and bonds, as they are now ways of the past. Instead, their priorities now lie in the growth of decentralized energy solutions and microgrids and the long-term investment potential in climate-focused energy funds. A fitting term for these emerging strategies is impact investing—an approach that seeks not only financial returns but also positive social and environmental outcomes. Ultimately, what investors should consider when treating energy as an alternative asset is the risk-reward ratio. It is important to remember: with great risk comes great reward. This should be the mantra of every alternative energy investor.

FAQ

Why is energy considered an alternative investment?

Energy is a valuable alternative investment opportunity in modern portfolios. This is because renewable energy offers diversification and growth potential that are not limited to traditional stocks and bonds.

Are there any risks of investing in energy?

Yes, there could be risks involved with energy investment. The upfront costs could be high. Investments in this sector are generally subject to market volatility. Political and regulatory uncertainty govern the fluctuating prices. Energy has lower liquidity than traditional assets.

What tax benefits exist for energy investments?

There are programs like the Investment Tax Credit (ITC). It allows investors to deduct a portion of clean energy investments from federal taxes, enabling better returns.

About the Author

Derrick May is the President and CEO of Optimum Energy Partners LLC, where he applies over 21 years of oil and gas industry experience to lead the company’s strategic initiatives. His background is in private equity, investment banking, and company management; he has a notable track record of facilitating energy transactions. With 300+ investing partners and over $7.5 million in distributions in 2024 alone, Derrick has established Optimum as a major player in the energy investment space. The company has produced 60 wells consecutively; it currently participates in over 100 wells.

Passionate about alternative investments and portfolio diversification, Derrick also advocates philanthropy and mentorship as an ambassador for Girl Power USA. He also loves playing sports-especially tennis, hockey, and softball-and cherishes spending time with his growing family.