There can’t be many hotter investment spaces right now than the renewable energy sector. Concerns about climate change and the shifting away from fossil fuels have resulted in an influx of large sums of money into the region in recent years. Today I am looking at two workbenches FTSE 250 constituents that not only provide exposure to green energy sources, but also offer significant dividends to boot.

Big dividend

The first is Renewable Infrastructures Group (LSE: TRIG). This fund is exposed to a portfolio of 79 projects with a net capacity of over 1900 megawatts. More than half of them are based in England, Wales and Scotland. The rest, for the most part, are in Sweden, France and Germany.

In terms of real assets, the focus is clearly on wind farms here. No less than 58% come from onshore sources, of which 32% come from offshore projects.

In contrast, solar energy projects represent only 9%. However, it is clear that the company is looking to increase this part of its portfolio. Last month, TRIG announced that it had acquired four of these sites in Spain. This should help widen the earnings spread, which, in turn, should be good news for dividend hunters.

As mentioned earlier, one of the main attractions of owning TRIG is this stream of income. Analysts’ consensus is that the nearly £ 3bn fund will return 6.76 pence per share in FY 21. Using the current share price this becomes a return of 5.2% – one of the highest available in the FTSE 250. For comparison, the index itself only returns 1.9%.

Also available …

As mentioned earlier, TRIG is definitely not the only option for investors. Indeed, another fund listed in the UK – Greencoat UK Wind (LSE: UKW) – offers an identical dividend yield of 5.2%.

Greencoat has also recovered assets in recent times. In September, he announced the acquisition of the Andershaw wind farm for £ 121million. Another of the things I particularly like about this space is that the demand tends to be pretty consistent due to the fact that utility companies are legally obligated to obtain a certain amount of electricity from green sources.

That’s not to say that there aren’t potential downsides to both funds. Being dependent on natural resources (i.e. things we cannot control), sources may not produce as much electricity as we want. The high costs associated with the installation and maintenance of wind and solar farms should not be overlooked either.

Seen solely from an investment perspective, the huge interest in this space theoretically increases the chances of overpaying for a slice of the renewable pie. It should be noted that the dividend increases, while very consistent so far, are not really massive either (1% to 2% per year).

Stay diversified

Despite these potential headwinds, TRIG and UKW are exactly the kind of stocks I love for generating passive income. Aside from Mr Market’s odd change in mood (each fell about 30% in March 2020), I suspect that one or both could be held “forever†without a problem. And if those dividends were reinvested, the eventual returns could be very decent.

That said, the need to stay appropriately diverse is as important here as it always has been. In practice, that would mean picking up a few funds or stocks that have very little relevance to renewables. The options abound on my last check.

Paul Summers has no position in any of the stocks mentioned. The Motley Fool UK recommended Greencoat UK Wind. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.