Despite Rise in Costs, Clean Energy Growth Should Prevail

The current macroeconomic environment has been affecting the renewable energy industry, with inflationary pressures pushing the costs of materials higher. Nonetheless, the long-term trend of declining costs should prevail, and thus maintain clean energy growth.

One of the major factors helping to increase the adoption of renewable energy alternatives was a reduction in costs. Given this, more consumers have been able to afford clean energy technology, But rising inflation in the past few years pushed it out of reach for many. However, the expectation that the Federal Reserve will eventually loosen monetary policy and cut interest rates should help bring down costs once again.

“A temporary rise in renewable costs could belie their long-term declining trend and relative competitiveness,” a Deloitte report on the renewable energy industry said. “High financing, balance of plant, labor, and land costs outweighed commodity and freight price falls in 2023, pushing up the levelized costs of energy (LCOEs) for wind and utility-scale solar, especially projects with trackers that account for 80% of installed solar capacity.”

The report mentioned that high inflation and interest rates were offset by the federal government’s push to reduce carbon emissions. This came in the form of tax credits to help counterbalance the temporary spike in costs.

“While this equation may prevent LCOEs from resuming historical downward trends in 2024, the IRA investment tax credits and production tax credits have made utility-scale solar and onshore wind, including projects paired with storage, competitive with marginal costs of existing conventional generation,” the report added.

Capitalize on Clean Energy Growth

Once inflation subsides and clean energy adoption rises again, that will open opportunities for adding growth to a portfolio via the ALPS Clean Energy ETF (ACES). The fund seeks investment results that correspond generally to the performance of its underlying index, the CIBC Atlas Clean Energy Index (NACEX).

ACES delivers exposure to a diverse set of U.S. and Canadian companies involved in the clean energy sector , including renewables and clean technology. The sector comprises companies that provide products and services that enable the evolution of a more sustainable energy sector.

To get all-encompassing exposure to clean energy growth, the fund is deeply diversified. This includes exposure to companies specializing in electric vehicles, wind, and solar power. Those three areas make up the majority of the fund. But investors also get exposure to nascent technologies such as hydro/geothermal and bioenergy solutions.

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