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Solar to Outshine Oil in Global Investment? ETF in Focus

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According to a recent International Energy Agency (IEA) report, the global energy investment landscape is experiencing a monumental shift, as quoted on CNBC. The agency anticipates that by 2023, total investments in energy will touch approximately $2.8 trillion, with more than $1.7 trillion channeled toward clean energy technologies. Of this, solar investments alone are predicted to exceed $1 billion per day, reflecting an encouraging trend in energy transition.

The executive director of the IEA, Fatih Birol, heralds this as a historic moment, with solar investments poised to exceed oil investments for the first time. This change marks a significant stride toward sustainability and underlines the accelerating pace of energy transition globally.

Fossil Fuel Investment: A Troubling Perspective

Despite the promising forecast for clean energy, the IEA report also highlights some unsettling trends. It estimates that fossil fuels, including coal, gas, and oil, will continue to draw slightly more than $1 trillion in investments this year.

The level of investment in fossil fuels, particularly coal, is strikingly misaligned with the requirements of the Net Zero Emissions by 2050 Scenario (NZE Scenario). Today's investment levels are roughly double of what is required by the NZE Scenario, with coal investments nearly six times the projected 2030 requirements.

Sun Rises on Climate Goals

The 2015 Paris Agreement, which aims to limit global warming to well below 2 degrees Celsius, probably adds gravity to the IEA's report. Achieving net-zero human-made carbon dioxide emissions by 2050 is seen as a critical step toward the 1.5 degrees Celsius target. A key driver of the solar industry's emergence was the policy support extended by governments worldwide. Subsidies, tax credits, and feed-in tariffs made solar power an attractive investment.

Dave Jones from Ember, an energy think tank, lauds solar's emerging status as a "true energy superpower," as quoted on CNBC. Solar power is fast becoming a crucial tool for rapid decarbonization, especially as it increasingly powers vehicles, displacing oil.

Against this backdrop, below, we highlight pure-play ETF Invesco Solar ETF (TAN - Free Report) in detail.

TAN in Focus

The underlying MAC Global Solar Energy Index comprises companies in the solar energy industry. The United States takes the top spot with about 47% focus, followed by China (19.7%) and Spain (5.6%). Information Technology (58.3%), Utilities (20.7%) and Industrials (16.1%) take the top three places in the sectoral breakdown. First Solar (9.94%), SolarEdge Technologies (9.38%) and Enphase Energy (8.15%) hold the top three spots in the fund. The fund charges 69 bps in fees.


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