Astute investors know that the global transition to reduced dependence on fossil fuels and increased adoption of renewable energy is well underway, bringing myriad investment opportunities.
However, some of the spending catalysts for renewable equities and exchange traded funds such as the ALPS Clean Energy ETF (ACES ) may not be earning adequate credit. The $509.64 million ACES is higher by 13.72% over the past month, indicating it is pricing in some of the good news that may be going overlooked.
While the Inflation Reduction Act passed last year — a move that many consider a boon to the U.S. renewable energy industry — some of its benefits have only come to life recently. For example, the federal government recently announced $11 billion in spending aimed at bringing more green energy to rural parts of the U.S., which could be relevant to some ACES member firms.
For long-term investors considering the fund, the good news is that renewable energy in the U.S. and throughout much of the developed world is in its early innings.
ACES Angles Could Be Interesting
There’s a long runway ahead for energy transition spending that could support the ACES investment thesis.
“Based on the International Energy Agency’s latest World Energy Investment 2023 report, global investment in clean energy continues to rise and is projected to reach USD 1.7 trillion in 2023. The difference between the investment in clean energy and fossil fuels has continued to increase, meaning we continue to see more capital invested in the clean energy space than ever before,” according to S&P Dow Jones Indices.
Providing ballast for ACES and the broader renewable energy investment thesis is the point that in 2022, renewables accounted for 21% of the power generated in the U.S., according to the U.S. Energy Information Administration. That implies not only increasing reliability, but ample room to gain more market share against traditional fuel sources. For example, natural gas accounts for 39% of power generated in the U.S.
Of course, renewable energy is a global theme, and that was on the front burner when the G7 nations met in Japan in April. Some of the takeaways can indicate positive implications for ACES.
“The G7 (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.) ministers met in Sapporo, Japan in April to discuss climate, energy and environmental issues. At the meeting, the G7 countries agreed to collectively increase the offshore wind capacity of 150GW and increase solar photovoltaics to more than 1TW by 2030,” concluded S&P.
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