Most people will answer this question incorrectly -- let's see how you do.

Question: How much solar power capacity, in gigawatts, would you need to install if you wanted to replace the electricity generated from 1 gigawatt (GW) of nuclear power?

Answer: 3.4 GW.

If you're confused, don't worry. One of the things people rarely understand about renewable energy is that power is not the same thing as energy. The difference has major implications for our ability to reach global climate goals -- and investors' success in the renewable energy sector.

What's the difference between power and energy?

The words "power" and "energy" get tossed around a little too carelessly when discussing renewable energy, but they're not the same thing -- and the difference matters quite a bit. When it comes to electricity generation:

Power is a measure of the capacity to produce electricity. This is measured in watts, or, more likely for a power plant, megawatts (1 MW = 1 million watts) and gigawatts (1 GW = 1 billion watts).

is a measure of the capacity to produce electricity. This is measured in watts, or, more likely for a power plant, megawatts (1 MW = 1 million watts) and gigawatts (1 GW = 1 billion watts). Energy is a measure of the electricity actually produced. This is measured in watt-hours, or, more likely for a power plant, gigawatt-hours (GWh) or even terawatt-hours (TWh).

How do the two work together? If a 100 megawatt (power) wind farm operates at full capacity for one hour, it will generate 100 megawatt-hours of electricity (energy). Similarly, if the same 100 megawatt wind farm only operates at full capacity for 30 minutes, then sits idle for 30 minutes, it will have only produced 50 megawatt-hours of electricity.

That demonstrates in simple terms why power capacity is not the most important metric to consider when discussing energy generation assets. After all, companies generate revenue and profits from how much electricity is produced (in GWh), not how much they could produce (in GW) under perfect conditions. The difference between power and energy is also plain to see when evaluating the variations between installed capacity and actual electricity generation across America's energy assets in 2017:

Energy Source Installed Capacity (Power) Share of U.S. Electricity Production (Energy) Coal 260.3 GW 30.1% Natural gas, combined cycle 246.4 GW 31.7% Nuclear 99.6 GW 20% Hydroelectric 80.0 GW 7.5% Wind 87.5 GW 6.3% Solar, photovoltaic 41.1 GW 1.8%

The difference between power and energy really stands out in the table above. For instance, because nuclear power can operate close to its full power capacity throughout the year (averaging 92% in 2017), it can generate several times more electricity than wind or solar assets with equivalent capacity, since the latter two operate at much less than their full power potential over a 12-month period -- averaging 37% and 27%, respectively, in 2017.

When it comes to renewables, the difference between power and energy also matters when comparing one wind or solar farm to another. That's because location is crucial for renewable energy projects -- and the companies that own them.

Why it matters to investors

For the most part, a nuclear or coal-fired power plant in Maine will generate the same amount of electricity as an identical power plant of the same type in Texas. But the energy output of several identical wind or solar farms can vary quite a bit between locations, because they rely on their environment for "fuel". It's a huge consideration when weighing the portfolios of renewable energy asset companies such as Pattern Energy Group (NASDAQ:PEGI) and NextEra Energy Partners (NYSE:NEP).

For instance, Pattern Energy Group owns 2,942 MW of wind and solar assets today, with the goal of owning 5,000 MW of renewable energy assets by 2020. While it's nice to know the growth target for power capacity, investors really only care about growth in electricity generated and sold. That means the types of assets acquired -- and where they are located -- matters more to investors than the total power capacity.

Knowing that, the company's focus on expanding in Japan could deserve more attention. Japan has relatively poor wind and solar potential compared to the United States. While onshore wind farms in Northern Japan are the best in the nation, operating at 29% of their installed capacity on average, wind farms in the United States averaged 37% overall in 2017 -- and the newest assets in the best locations exceed 50%. Put another way, an average 100 MW of American wind power generates more electricity than an equal amount in Japan.

That means investors need to closely monitor Pattern Energy Group's expansion to ensure higher electricity prices in Japan are making up for lower electricity generation from wind assets there. Simply growing power capacity isn't enough. In the first quarter of 2018 the business increased power capacity 11% compared to the year-ago period, but only grew owned electricity generation 4% in the same time period. Some of that may be due to acquired assets not contributing for the full period, but it's something to watch in future periods.

A lack of geographic risk is one huge advantage that NextEra Energy Partners has over its peers. The company owns 2,750 MW of wind assets in the American wind corridor, the best place to stick an onshore turbine. All of its 560 MW of solar is located in Southern California, which boasts some of the best solar potential in the country. Even better: Its parent will soon have access to a pipeline of 40 GW of renewable power projects, all in the United States. That and its trouncing of peers since its market debut a few years ago make it one of the best renewable energy stocks on the market.

Power is nice to know, but energy is what matters

The difference between power and energy matters a lot, especially when it comes to renewable energy. For instance, the ability to meet climate goals depends on replacing electricity generated by fossil fuel sources with electricity from renewables. But that means the United States needs to add 1.4 GW of wind or 2 GW of solar for every 1 GW of coal it retires.

It also matters for investors interested in renewable energy. Energy generation asset managers generally boast about their growth in terms of power capacity, when the success of their businesses is actually determined by electricity generated and sold. Considering location is uniquely important for renewable energy assets, Pattern Energy Group's recent focus on expanding in wind-poor Japan could hurt in the long run. Similarly, the focus on more prolific assets in America is a huge long-term advantage for NextEra Energy Partners.