Finding ambitious and compelling forecasts regarding adoption of renewable energy sources around the world isn’t difficult. For example, the Energy Information Administration (EIA) estimates that renewables consumption in the U.S. will increase by least 6% through 2050.
That while consumption of traditional fuel sources, either holds steady or outright declines. As such, there are tangible investment implications for exchange traded funds, including the ALPS Clean Energy ETF (ACES ).
ACES, which follows the IBC Atlas Clean Energy Index (NACEX), is a highly relevant play on rising adoption of renewable energy because it is one of the most diverse offerings in this ETF category. Home to nearly $493 million in assets under management, ACES features exposure to seven industries and the fund’s roster is comprised entirely of US-based and Canadian companies.
Not surprisingly, solar is one of the biggest allocations in the fund, accounting for nearly a quarter of its weight — an important trait at a time when solar adoption is rising as production costs decline.
“Solar power, for example, is gaining significant ground in two notable areas: rooftop solar panels for residential homes and solar farms built by electric utilities to replace coal-powered plants. Increased demand for solar products has fueled competition in the industry, driving costs down. In fact, solar electricity generation costs have decreased 83% since 2010,” wrote Morgan Stanley investment strategist Vijay Chandar.
The strategist also highlighted some bullish data points regarding wind energy, which is relevant to investors considering ACES because the ETF devotes 19.52% of its weight to wind equities.
“Interestingly, wind-generated electricity costs have fallen by a similar amount—85%—assisted by a deceptively simple innovation: longer blades. In recent years, developers have successfully added longer rotor blades to both onshore and offshore wind turbines, allowing for increased energy output,” he added.
Another element in the ACES conversation is the role renewable energy can play in helping governments shore up energy security — a top priority against the backdrop of Russia’s ongoing war in Ukraine. That geopolitical conflict doesn’t imply negativity for renewable energy adoption. Over the long-term, it could prove to be a positive catalyst.
“That doesn’t have to come at the expense of investment in renewables in the longer term, however. The passage of the Inflation Reduction Act in August 2022, for example, represents the single biggest climate investment in U.S. history, with financial support for a variety of clean energy technologies,” concluded Chandar.
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