Investors who piled into clean energy themes the last few years are experiencing some performance pain this year, as we appear to be experiencing a detour on the road to the clean energy transition.
Related themes have been hard hit this year due to a confluence of events.
1. High Interest Rates
Clean energy projects are quite capital-intensive, and many have been delayed or shelved due to cost-prohibitive financing rates. For example, Bloomberg’s New Energy Finance estimates that the cost of offshore wind projects has increased 60%. due to higher interest rates. The financing effect is even more pronounced in Emerging Markets where credit risks are higher. The International Energy Agency predicts there could be a $2 trillion clean energy financing gap. between developed and emerging economies by 2030.
2. Lower EV Demand
Higher interest rates have also exacerbated the price differences between EVs, hybrids, and gas-powered cars. The top 10 electric vehicles on the market in the U.S. have an average price of $53,758. Besides high interest rates, electric vehicles are expensive because battery prices remain high in the mid $130 per kilowatt hour range. Metal prices are coming down. The price of lithium has fallen 80% in the past year due to overcapacity, mostly coming from Australia. There is also new, cheaper, and longer-range battery technology on the horizon, but for now, hybrids and gas-engine cars remain cheaper options.
3. Need for Infrastructure
While government funds are finally being channeled into the infrastructure spending needed to support a clean energy future, the process is slow, bureaucratic, and will take decades to complete. States like Kentucky are just now seeing installations of their first high-capacity public EV charging stations, funded through the 2021 Inflation Reduction Act. There also remains a lack of global unified standards for charging, although Tesla is leading the “charge” on the road to fast-charging energy infrastructure.
For long-term focused thematic investors, the detour on the road to the transition might afford some good entry points. Let’s look at some of the ETFs in the space that are down more than 10% year to date.
Clean Energy ETFs Down >10% YTD
| Symbol | ETF Name | Total Assets | YTD |
|---|---|---|---|
| HYDR | Global X Hydrogen ETF | $34,477,900 | -22.43% |
| TAN | Invesco Solar ETF | $1,363,680,000 | -20.06% |
| ACES | ALPS Clean Energy ETF | $252,984,000 | -19.03% |
| HDRO | Defiance Next Gen H2 ETF | $21,131,600 | -18.91% |
| QCLN | First Trust NASDAQ Clean Edge Green Energy | $882,926,000 | -18.62% |
| CTEC | Global X CleanTech ETF | $51,544,300 | -17.61% |
| FRNW | Fidelity Clean Energy ETF | $26,455,800 | -16.58% |
| CTEX | ProShares S&P Kensho Cleantech ETF | $5,106,400 | -15.93% |
| RAYS | Global X Solar ETF | $6,202,780 | -15.20% |
| PBD | Invesco Global Clean Energy ETF | $125,870,000 | -14.84% |
| HJEN | Direxion Hydrogen ETF | $25,502,400 | -14.06% |
| SMOG | VanEck Low Carbon Energy ETF | $143,303,000 | -13.67% |
| CNRG | SPDR S&P Kensho Clean Power ETF | $222,918,000 | -13.26% |
| RNRG | Global X Renewable Energy Producers ETF | $40,398,900 | -12.77% |
| WNDY | Global X Wind Energy ETF | $2,527,620 | -12.11% |
| ERTH | Invesco MSCI Sustainable Future ETF | $200,507,000 | -11.57% |
| ICLN | iShares Global Clean Energy ETF | $2,534,330,000 | -11.18% |
| RNWZ | TrueShares Eagle Global Renewable Energy Income | $2,253,950 | -10.84% |
| VCLN | Virtus Duff & Phelps Clean Energy ETF | $6,692,070 | -10.21% |
In addition to clean-energy-specific ETFs, many downstream electric vehicle plays, such as lithium battery and green metal ETFs, are also down considerably YTD due to the same headwinds.
Battery Metal ETFs Down >10% YTD
| Symbol | ETF Name | Total Assets | YTD |
|---|---|---|---|
| LIT | Global X Lithium & Battery Tech ETF | $1,613,720,000 | -16.06% |
| BATT | Amplify Lithium & Battery Technology ETF | $89,649,500 | -15.38% |
| WBAT | WisdomTree Battery Value Chain and Innovation | $4,112,800 | -10.12% |
Critical and Green Metal ETFs Down >10% YTD
| Symbol | ETF Name | Total Assets | YTD |
|---|---|---|---|
| REMX | VanEck Rare Earth/Strategic Metals ETF | $330,814,000 | -21.54% |
| GMET | VanEck Green Metals ETF | $23,355,000 | -12.79% |
| CRIT | Optica Rare Earths & Critical Materials ETF | $1,965,650 | -12.14% |
| DMAT | Global X Disruptive Materials ETF | $5,779,520 | -12.10% |
As things stand, the Fed seeks more evidence that inflation is cooling before it commences cutting rates. Clean-energy-related themes could see a big boost when the rate-cutting cycle finally begins, putting them back on the road to growth.
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