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Clean energy is the fastest-growing energy source in the United States. The space has been sizzling hot in recent months and is set to explode in the coming years given climate change, growing global renewable energy consumption, higher spending in clean tech business and Joe Biden’s push toward going greener.
Renewable Energy Consumption
Global renewable energy consumption has been growing exponentially at an average annual rate of 13.7% over the past decade. It is the only category of energy that grew globally at double digits over the past decade. Consumption grew 12.2% annually in 2019. Falling cost of renewable energy generation has led to strong growth. Over the past 10 years, the cost of solar panels has plunged 82%, onshore wind costs have skidded 39% and offshore wind has fallen 29%, according to the International Renewable Energy Agency. Clean energy investment is now expected to account for half of the total investment in the entire energy sector globally, according to UBS.
The latest data from the U.S. Energy Information Administration showed that 18% of the U.S. electricity generation came from alternative energy in 2019 versus 10% in 2009. The world currently gets about a third of its energy from renewable sources.
Clean Tech Spending
The interest in environmental, social and governance investing has been rising rapidly with firms across the globe investing in clean tech business. China is responsible for around 70% of all solar photovoltaic panels. Germany gets nearly half of its energy from renewables, according to Clean Energy Wire. BP plc (BP - Free Report) plans to decrease oil production by 40% over the next decade and invest $5 billion in clean tech by 2030.
Biden’s Going Green Plan
Joe Biden has vowed to address climate change by creating green energy jobs and building out a "modern and sustainable infrastructure" to reach a carbon-free energy sector in the United States by 2035. The President plans to pump $2 trillion into green energy over four years to build solar panels, charging stations and more; vows to rejoin the Paris climate in “exactly 77 days;” and aims for net-zero emissions by 2050. The $900 billion coronavirus relief package approved by the Congress at the end of the last year has also set the stage for further rally in the green energy space (read: Clean Energy ETFs to Keep Soaring in Biden Era).
This is especially true as the bill includes billions of dollars to promote clean energy such as wind and solar power while limiting the use of a potent greenhouse gas in refrigerants and extending tax incentives for wind and solar energy. This is the first time in 13 years that the Congress has used the energy policy to tackle global warming. The package will also reduce the use of hydrofluorocarbons (HFCs) — chemicals used in air conditioners and refrigerators that are hundreds of times worse for the climate than carbon dioxide.
ETFs in Focus
We have highlighted 10 ETFs that focuses on the clean energy space:
This fund provides global exposure to 30 companies that produce energy from solar, wind and other renewable sources by tracking the S&P Global Clean Energy Index. It is concentrated on Plug Power (PLUG - Free Report) at 10.6% while other firms hold no more than 5.4% of assets. The United States and China take the top two spots in terms of country exposure with 37% and 11.6% share, respectively. The ETF has AUM of $6.9 billion and charges 46 bps in annual fees and expenses. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Power-packed ETFs for Your Portfolio in 2021).
This ETF offers pure-play global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 37 stocks in the basket. It is slightly tilted toward the top firm – Enphase Energy (ENPH - Free Report) — at 10.6% while the other firms make up for no more than 7.9% share. U.S. firms dominate the fund’s portfolio with nearly 45.4% share, followed by China (28.6%) and Spain (6.7%). The product has amassed $4.9 billion in its asset base and charges investors 69 basis points in fees per year. It has a Zacks ETF Rank #2 with a High risk outlook.
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report)
This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $3.2 billion. In total, it holds 45 securities with each accounting for less than 8.8% share. The product charges 60 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook.
This fund seeks to track the performance of an index comprising U.S. and Canada-based companies that primarily operate in the clean energy sector. It has amassed $1.2 billion in its asset base and charges 55 bps in fees per year from investors. The ETF holds 33 securities in its basket with none making up for more than 9.1% share (read: Go Greener in 2021 With Best ETFs & Stocks of 2020).
Invesco Cleantech ETF
This ETF follows the Cleantech Index, which measures the performance of the cleantech company that derives at least 50% of its revenues or operating profits from cleantech businesses. It is home to 60 stocks with each accounting for less than 3.2% of assets. American firms take the largest share at 58.1% while Switzerland and Denmark round off the next two with 7.3% and 5.3% share, respectively. The product has amassed $509.6 million in its asset base and charges 65 bps in annual fees.
This product follows the WilderHill New Energy Global Innovation Index and offers exposure to companies engaged in the business of the advancement of cleaner energy and conservation. It holds 118 securities in its basket with each accounting for no more than 2.4% share. American firms make up for the largest share at 30.1% while China and Canada round off the next two spots. PBD has AUM of $488.5 million and charges 75 bps in annual fees. It has a Zacks ETF Rank #2 with a High risk outlook.
This fund offers exposure to global companies that are active in the wind energy industry based on analysis of the products and services offered by those companies by tracking the ISE Clean Edge Global Wind Energy Index. It holds 49 stocks in its basket with each accounting for less than 9.1% of assets and charges 60 bps in annual fees. The ETF has amassed $483.6 million in its asset base.
This ETF offers exposure to companies whose products and services are driving innovation in the clean energy sector, which includes the areas of solar, wind, geothermal and hydroelectric power. It follows the S&P Kensho Clean Power Index and holds 39 stocks in its basket with each accounting for less than 7.8% share. The product has managed assets worth $410.2 million in its asset base and charges 45 bps in annual fees (read: Top ETF Stories of January Worthy of Attention in February).
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID - Free Report)
This fund provides exposure to companies that are primarily engaged in electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector. It tracks the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index and holds 65 securities in its basket with none accounting for more than 8.5% share. GRID has AUM of $198.2 million and charges 70 bps in fees from investors. It has a Zacks ETF Rank #2 with a High risk outlook.
With AUM of $111.4 million, this ETF seeks to invest in companies that produce energy from renewable sources including wind, solar, hydroelectric, geothermal, and biofuels. It tracks the Indxx Renewable Energy Producers Index, holding 43 stocks in its basket with none making up for more than 6.2% of assets. The fund charges 65 bps in annual fees.
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A Complete Guide to Clean Energy ETFs
Clean energy is the fastest-growing energy source in the United States. The space has been sizzling hot in recent months and is set to explode in the coming years given climate change, growing global renewable energy consumption, higher spending in clean tech business and Joe Biden’s push toward going greener.
Renewable Energy Consumption
Global renewable energy consumption has been growing exponentially at an average annual rate of 13.7% over the past decade. It is the only category of energy that grew globally at double digits over the past decade. Consumption grew 12.2% annually in 2019. Falling cost of renewable energy generation has led to strong growth. Over the past 10 years, the cost of solar panels has plunged 82%, onshore wind costs have skidded 39% and offshore wind has fallen 29%, according to the International Renewable Energy Agency. Clean energy investment is now expected to account for half of the total investment in the entire energy sector globally, according to UBS.
The latest data from the U.S. Energy Information Administration showed that 18% of the U.S. electricity generation came from alternative energy in 2019 versus 10% in 2009. The world currently gets about a third of its energy from renewable sources.
Clean Tech Spending
The interest in environmental, social and governance investing has been rising rapidly with firms across the globe investing in clean tech business. China is responsible for around 70% of all solar photovoltaic panels. Germany gets nearly half of its energy from renewables, according to Clean Energy Wire. BP plc (BP - Free Report) plans to decrease oil production by 40% over the next decade and invest $5 billion in clean tech by 2030.
Biden’s Going Green Plan
Joe Biden has vowed to address climate change by creating green energy jobs and building out a "modern and sustainable infrastructure" to reach a carbon-free energy sector in the United States by 2035. The President plans to pump $2 trillion into green energy over four years to build solar panels, charging stations and more; vows to rejoin the Paris climate in “exactly 77 days;” and aims for net-zero emissions by 2050. The $900 billion coronavirus relief package approved by the Congress at the end of the last year has also set the stage for further rally in the green energy space (read: Clean Energy ETFs to Keep Soaring in Biden Era).
This is especially true as the bill includes billions of dollars to promote clean energy such as wind and solar power while limiting the use of a potent greenhouse gas in refrigerants and extending tax incentives for wind and solar energy. This is the first time in 13 years that the Congress has used the energy policy to tackle global warming. The package will also reduce the use of hydrofluorocarbons (HFCs) — chemicals used in air conditioners and refrigerators that are hundreds of times worse for the climate than carbon dioxide.
ETFs in Focus
We have highlighted 10 ETFs that focuses on the clean energy space:
iShares Global Clean Energy ETF (ICLN - Free Report)
This fund provides global exposure to 30 companies that produce energy from solar, wind and other renewable sources by tracking the S&P Global Clean Energy Index. It is concentrated on Plug Power (PLUG - Free Report) at 10.6% while other firms hold no more than 5.4% of assets. The United States and China take the top two spots in terms of country exposure with 37% and 11.6% share, respectively. The ETF has AUM of $6.9 billion and charges 46 bps in annual fees and expenses. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Power-packed ETFs for Your Portfolio in 2021).
Invesco Solar ETF (TAN - Free Report)
This ETF offers pure-play global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 37 stocks in the basket. It is slightly tilted toward the top firm – Enphase Energy (ENPH - Free Report) — at 10.6% while the other firms make up for no more than 7.9% share. U.S. firms dominate the fund’s portfolio with nearly 45.4% share, followed by China (28.6%) and Spain (6.7%). The product has amassed $4.9 billion in its asset base and charges investors 69 basis points in fees per year. It has a Zacks ETF Rank #2 with a High risk outlook.
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report)
This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $3.2 billion. In total, it holds 45 securities with each accounting for less than 8.8% share. The product charges 60 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook.
ALPS Clean Energy ETF (ACES - Free Report)
This fund seeks to track the performance of an index comprising U.S. and Canada-based companies that primarily operate in the clean energy sector. It has amassed $1.2 billion in its asset base and charges 55 bps in fees per year from investors. The ETF holds 33 securities in its basket with none making up for more than 9.1% share (read: Go Greener in 2021 With Best ETFs & Stocks of 2020).
Invesco Cleantech ETF
This ETF follows the Cleantech Index, which measures the performance of the cleantech company that derives at least 50% of its revenues or operating profits from cleantech businesses. It is home to 60 stocks with each accounting for less than 3.2% of assets. American firms take the largest share at 58.1% while Switzerland and Denmark round off the next two with 7.3% and 5.3% share, respectively. The product has amassed $509.6 million in its asset base and charges 65 bps in annual fees.
Invesco Global Clean Energy ETF (PBD - Free Report)
This product follows the WilderHill New Energy Global Innovation Index and offers exposure to companies engaged in the business of the advancement of cleaner energy and conservation. It holds 118 securities in its basket with each accounting for no more than 2.4% share. American firms make up for the largest share at 30.1% while China and Canada round off the next two spots. PBD has AUM of $488.5 million and charges 75 bps in annual fees. It has a Zacks ETF Rank #2 with a High risk outlook.
First Trust Global Wind Energy ETF (FAN - Free Report)
This fund offers exposure to global companies that are active in the wind energy industry based on analysis of the products and services offered by those companies by tracking the ISE Clean Edge Global Wind Energy Index. It holds 49 stocks in its basket with each accounting for less than 9.1% of assets and charges 60 bps in annual fees. The ETF has amassed $483.6 million in its asset base.
SPDR S&P Kensho Clean Power ETF (CNRG - Free Report)
This ETF offers exposure to companies whose products and services are driving innovation in the clean energy sector, which includes the areas of solar, wind, geothermal and hydroelectric power. It follows the S&P Kensho Clean Power Index and holds 39 stocks in its basket with each accounting for less than 7.8% share. The product has managed assets worth $410.2 million in its asset base and charges 45 bps in annual fees (read: Top ETF Stories of January Worthy of Attention in February).
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID - Free Report)
This fund provides exposure to companies that are primarily engaged in electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector. It tracks the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index and holds 65 securities in its basket with none accounting for more than 8.5% share. GRID has AUM of $198.2 million and charges 70 bps in fees from investors. It has a Zacks ETF Rank #2 with a High risk outlook.
Global X Renewable Energy Producers ETF RNRG
With AUM of $111.4 million, this ETF seeks to invest in companies that produce energy from renewable sources including wind, solar, hydroelectric, geothermal, and biofuels. It tracks the Indxx Renewable Energy Producers Index, holding 43 stocks in its basket with none making up for more than 6.2% of assets. The fund charges 65 bps in annual fees.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>