Solar and wind exchange traded fund investors should look to the long-term as record investments in clean technology could help fuel growth. While the plunge in oil prices have dragged down the renewable energy, investors may find a cheaper entry point into a growing sector.
Year-to-date, the Guggenheim Solar ETF (NYSEArca: TAN) and the Market Vectors Solar Energy ETF (NYSEArca: KWT), which track global solar photovoltaic panel producers, plunged 28.2% and 23.4%, respectively. Meanwhile, the First Trust Global Wind Energy Fund (NYSEArca: FAN), which follows companies involved with the wind energy industry, was up 0.8% so far this year.
While the market for these green energy sectors may be under pressure, clean energy investments broke new records in 2015 and is attracting twice as much global fund as fossil fuels, reports Tom Randall for Bloomberg.
Fueling the growth in renewables, alternative energy technologies are becoming cheaper. Michael Liebreich, chairman of the advisory board for Bloomberg New Energy Finance, pointed out that recent solar and wind auctions in Mexico and Morocco ended with companies that promised to produce electricity at the cheapest amount from any source anywhere in the world.
“We’re in a low-cost-of-oil environment for the foreseeable future,” Liebreich said at the BNEF Summit. “Did that stop renewable energy investment? Not at all.”
[related_stories]Government subsidies helped green energy technology get its foot in the door, but lower costs will help the industry compete with fossil fuel. Economies of scale has been the top driver of falling prices – for example, the cost of solar power has plunged to 1/150th of its level since the 1970s and solar installation has surged 115,000-fold.
As renewable technologies continue to advance, the industry will increase efficiency and decrease costs. According to BNEF, every time global wind power doubles, there is a 19% decline in costs. Every time solar power doubles, costs fall off 24%.
Moreover, the clean energy sources could be replacing some of the so-called dirty energy, like coal, which richer Organization for Economic Co-operation and Development countries have cut demand for almost a decade.
Guggenheim Solar ETF