Renewable energy is getting less expensive to produce and to consume, but it’s still going to take big spending to move the world toward a renewable future and those projected expenditures bolster the long-term case for ETFs, such as the ALPS Clean Energy ETF (ACES).
ACES follows the CIBC Atlas Clean Energy Index. That benchmark is comprised of U.S. and Canada-based companies that primarily operate in the clean energy sector. Constituents are companies focused on renewables and other clean technologies that enable the evolution of a more sustainable energy sector.
“As the rapid acceleration of wind and solar farms have significantly decreased emissions from electricity, other emissions-heavy industries still need to develop new technologies to reduce their carbon footprint,” reports Bloomberg, citing the International Energy Agency (IEA). “To scale up fast enough to reach mid-century climate goals, governments will need to ramp up spending on clean energy research and development by 2030.”
Cash Is King
There were a lot of bright spots in the markets during 2019, but energy couldn’t power its way through to higher gains compared to other sectors. However, as more initiatives towards clean energy become a higher priority, renewable energy sources could help drive strength in the sector.
Some industries known for their heavy carbon footprints are looking to change their ways and adopt alternative sources, but that move requires capital.
“While many technologies to reduce carbon emissions from high-polluting sectors like steel and chemical production and shipping already exist, they will need funding to develop to the point that they’re ready to be deployed at industrial scale, according to IEA’s special report on clean energy innovation,” reports Bloomberg.
What makes ACES appealing for long-term investors is that capital investments made by many industries that are looking to reduce carbon footprints run in long cycles, often multiple decades. That means there could be a multi-decade trend of rising renewable energy spending ahead.
“Heavy industries generally invest in 25-year cycles, with the next round expected to begin around 2030. As governments around the world look to invest billions or trillions of dollars to pull economies out of the coronavirus-triggered slump, aligning those investments to create markets for new clean technologies can avoid locking in emissions that would delay the timeline for hitting crucial climate goals,” according to Bloomberg.
Other alternative energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.