Investors that actively follow or allocate capital to renewable energy equities and the related exchange traded funds know all too well about the political sensitivity of this asset class.
That was on full display in 2020 when clean energy ETFs, such as the SPDR Kensho Clean Power ETF (CNRG), rallied seemingly every time a poll showed then-candidate Joe Biden with an advantage over then-President Donald Trump.
The good times extended into early 2021 when the Democrats swept a pair of Senate seats in Georgia, boosting expectations that the Biden administration would unleash massive green energy spending. As investors know, that reality didn’t materialize, and CNRG and its rivals spent more than a year faltering amid domestic political disappointment.
Proving that the renewable energy/politics sword cuts both ways, CNRG, which tracks the S&P Kensho Clean Power Index, soared 3.4% on Monday on news that the White House is suspending tariffs on solar panels produced by Asian countries.
“Biden’s tariff exemption will last 24 months and is expected to reduce the cost of solar panels. (Morningstar analyst Brett) Castelli sees the exemption mostly benefiting companies with exposure to utility-scale solar projects, which generate 1 megawatt or greater of solar energy. Solar panels contribute to about 30% of those large-scale project costs, according to Castelli,” wrote Morningstar analyst Jakir Hossain.
As its name implies, CNRG is a diversified play on renewable energy equities. It’s not a dedicated solar ETF, but as highlighted by Monday’s performance, CNRG possesses enough solar exposure to participate in good news rallies.
One important element to the tariff news is that it brings much-needed clarity to developers, including some CNRG components.
“We note many industry participants have delayed projects as they awaited clarity on the tariffs. Additionally, Biden plans to use the Defense Production Act to provide support for U.S.-made solar panels. We view these actions as aimed at balancing continued buildout of solar projects in the near term to support decarbonization goals, while looking to increase U.S. solar manufacturing over time,” added Castelli.
Morningstar acknowledges that there’s still some policy overhang in the solar market, but if that scenario eases, CNRG’s solar holdings are likely to benefit. Additionally, it’s hard to ignore that with the benefit of Monday’s rally, CNRG is higher by almost 10% over the past month and 5.56% since the start of the second quarter.
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