One segment of the stock landscape, which been hogging the attention of investors over the past week is undoubtedly the ‘green’, or clean energy, ETF area. Products in this corner of the investing world have crushed the broad benchmarks by wide margins.
Recently, a spate of good news have driven the pack higher. Plus, decent valuation of the space after a tough 2021 is acting as a useful catalyst for a potential rally in 2022. Rising rates is a concern.
We also believe that China’s (which is one of the renewable energy leaders) regulatory crackdown and phasing-out of subsidies probably hit the clean energy space hard last year. But the story could be rosy this year. Let’s find out what could keep clean energy ETFs rallying in 2022.
Rising Oil & Gas Prices
Russia is energy-rich. And Europe is highly dependent on that country for energy, importing about 40% of its energy requirement. Russia is the provider of about 35% of Europe’s gas. Hence, the latest Russia-Ukraine tensions have led to uncertainty in the energy market supply chain.
Oil breached $100 for the first time since 2014.
United States Brent Oil Fund, LP ( BNO Quick Quote BNO - Free Report) has gained 26.6% past month amid heightened tensions in East Europe. In any case, oil prices have been rising since the beginning of 2022 on a demand recovery and less OPEC+ output.
With oil prices running hot, the trend of a bull run in the clear energy space seems to have gained momentum as many have shifted to the other sources of energy. After all, the cost of renewable energy generation has been falling in recent years with continued technological innovation. This has started changing the competitive balance between clean and traditional energy.
“When there’s less certainty about other sources of energy, that will help renewables because they’re a cheap source of electricity,” says Joe Keefe, CEO of Pax World Funds, a line of fossil-fuel-free funds. “They’ve become very competitive from a price standpoint and are good long-term investments,” as
quoted on a Morningstar article. World-wide Push
Activity is also building up in nations like China, Europe, the United States, Japan and India. China has already made a name for itself in this field. After the Fukushima disaster in March 2011 that stymied its nuclear power industry, Japan has also shifted focus toward renewable energy options.
President Biden has expansionary plans for clean energy. He has a plan — a Clean Energy Revolution — to address the issue of climate emergency. He sees America as becoming a 100% clean energy economy by 2035 and having net zero emission by 2050.
Last week, as part of the Mining Innovations for Negative Emissions Resources (MINER) Program, the Department of Energy (DOE)
decided to release a $44 million funding opportunity to provide commercial-ready technologies that offer the United States a net-zero or net negative emissions way toward increased domestic supplies of copper, nickel, lithium, cobalt, rare earth elements, and other critical elements required for a clean energy transition. White House also rolled out $5 billion funding plan to states for electric vehicle chargers. Bullish Industry Projection
According to EIA, the renewable generation share is expected to rise from 20% in 2021 to 22% in 2022 and 24% in 2023. The momentum behind the solar and wind energy transition continues to gain traction, according to a recent report from S&P Global Market Intelligence.
Driven by stronger policy support and lofty climate targets announced during the COP26 climate talks in November, global renewable electricity capacity is forecast to increase by more than 60% between 2020 and 2026, reaching more than 4,800GW. The addition of exceptionally high capacity will become the “new normal” in 2022, with renewables accounting for 90% of new power capacity expansion, according to IEA,
as quoted on scmp.com.
Development of photovoltaic solar technology will keep breaching records, with annual additions reaching 162GW by 2022 — almost 50% higher than the pre-pandemic growth of 2019, per the abovesaid source.
Sustainable Investing: A Great Plus
Apart from the social standpoint, sustainable investing practice has a valid reason for increased gains. As per the source, lesser focus on environmental issues by the companies may result in lawsuits, fines and damages. In most cases, it has been seen that sound corporate governance leads to greater corporate durability.
The correction in the clean energy coupled with the latest oil rally could open up a buying opportunity in the space. The fundamentals are strong for the space. The cost of renewable energy generation has been falling in recent years with continued technological innovation. Increasing global acceptance has also been favoring clean energy.
ETFs in Focus
Against this backdrop, below we highlight a few clean energy ETFs that are still in the negative territory in the year-to-date frame, but posted strong gains in the past one month.
iShares Global Clean Energy ETF (– Down 4.7% YTD; Up 7.8% Past Month ICLN Quick Quote ICLN - Free Report) ALPS Clean Energy ETF (– Down 12.1% YTD; Up 4.4% Past Month ACES Quick Quote ACES - Free Report) SPDR S&P Kensho Clean Power ETF (CNRG) – Down 7.4% YTD; Up 4.1% Past Month Invesco Global Clean Energy ETF ( PBD Quick Quote PBD - Free Report) – Down 17.2% YTD; Up 2.6% Past Month First Trust NASDAQ Clean Edge Green Energy Index Fund (– Down 13.2% YTD; Up 2.1% Past Month QCLN Quick Quote QCLN - Free Report)