The growth of renewable energy is undeniable. That’s a positive on multiple fronts, not the least of which is the fact that many purveyors of environmentally friendly energy sources are spending more.
Fortunately for members of the ALPS Clean Energy ETF (ACES), costs to produce renewable energy and clean technologies are declining, but strong demand is compelling green energy companies to make needed investments today, and that means elevated capital expenditures.
“Renewables are already the cheapest source of new power generation in most markets across the world,” notes IHS Markit. “Cost declines due to technology evolutions and rapid policy advancements have triggered new investments, leading to further capacity additions and price drops. In the case of solar PV, investors and governments have come to expect continuously lower capex. In recent years however, as the technologies have matured, the capex of solar and wind has declined at a slower pace and become subject to temporary supply chain hurdles, such as the past year’s escalating shipment costs, rising module prices and escalating steel costs.”
The research firm’s commentary on solar and wind investments is pertinent to investors considering ACES because the ALPS exchange traded fund allocates over 40% of its roster to solar and wind equities.
As has been widely noted in recent months, the next frontier for ACES components to conquer isn’t so much about costs and adoption as it is about renewable energy and clean technologies proving to end users that value is being created.
“As the penetration of renewables increases, it is not so much about the cost, as it is about the value provided to the system. In a moment of high volatility, the predictability in operating renewables is valued. Financiers and investors also value investments in renewables as a step to meet climate commitments and de-risk portfolios,” adds IHS Markit.
Still, renewable companies’ ability to continue managing costs is important — the investment community demands it. Additionally, easing of global supply chain woes created by the coronavirus pandemic will further enhance installations and adoption around the world.
“Supply chain risks and increasing costs remain a major concern for the renewables industry, and companies throughout the value chain will need to mitigate and hedge these risks to remain successful. Despite these concerns, the value of renewables remains high enough to sustain a healthy growth rate of renewables additions,” concludes Markit.
Other renewable 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.
