On a year-to-date basis, clean energy equities and the related ETFs have delivered solid returns, but recent price action has left something to be desired.
ETFs such as the ALPS Clean Energy ETF (ACES ) got a lift from surging oil prices stemming from the war in Iran, but over the past month, ceasefire and peace talk headlines dominated the geopolitical news cycle. That’s contributing to slumping oil prices and clean energy stocks are along for the ride.
Experienced investors have seen this movie before. High oil prices often benefit alternative energy stocks and ETFs such as ACES, but that scenario is a double-edged sword. However, this time may be different. Green energy demand is increasing with some help of artificial intelligence. That may be a sign that the dip recently experienced by ACES is one to consider buying.
“At the same time, rapid growth in AI-driven data centers has created a new source of power demand, driving strong gains in fuel cell companies,” noted Rystad Energy.
Factors for an ACES Rebound
The data center trade is a credible catalyst for the clean energy segment. Hyperscalers need cost-efficient, reliable power sources. Some ACES components can meet that demand and they’re at the right place at the right time because it can take traditional utilities five-plus years to accomplish everything from permitting to building new power lines to service data centers.
AI inroads help, but in order for ACES and its brethren to bounce back as oil prices retreat, experts believe the recovery needs to include more than just a handful of clean energy stocks and segments.
“Looking ahead, the recovery trajectory remains intact but the path forward is segment specific. The strength of biofuels is closely tied to elevated oil prices, while fuel cell valuations depend on the scale of AI-driven power demand and realized deployment at data center projects,” added Rystad. “Moreover, the battery segment’s recovery hinges on EV demand absorbing current overcapacity, a process that higher oil prices could accelerate by improving EV economics.”
A wildcard could be declining inflation, which if it materializes could set the stage for the Federal Reserve to lower interest rates. That’s relevant to investors considering ACES because some domestic clean energy firms are capital-intensive and benefit from lower financing costs.
Looking further, a new era of growth for the green energy industry is afoot, but investors are banking on consistency, not hope.
“Sustained, broad-based upside will require easing financing conditions, stronger demand in lagging segments and continued alignment between energy security priorities and the energy transition,” concluded Rystad.
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