Clean Energy ETFs Have Rebound Potential

It’s been a lengthy run of disappointment for clean energy equities and the related exchange traded funds. The early innings of 2024 haven’t brought any signs of relief for these downtrodden assets.

Conversely, some market observers argue that there are multiple catalysts in place that could support a clean energy rebound this year. Should that scenario play out, ETFs such as the Invesco WilderHill Clean Energy ETF (PBW) and the Invesco Global Clean Energy ETF (PBD) could benefit.

Factors such as declining battery prices could stoke demand for commercial and residential renewable energy sources and electric vehicles (EVs). Additionally, national elections could be catalysts for a clean energy equity rebound.

PBD, PBW Pertinent Today

Both PBD and PBW are saddled with year-to-date losses. But the ETFs have the ingredients to participate in a potential clean energy rebound. For example, the funds have exposure to the theme of declining battery prices. That could facilitate broader adoption of clean technology and related products and services.

“Battery prices make up a third or more of the production cost of some clean technologies, such as energy storage systems for power grids, electric and hybrid vehicles (EVs). They have slid sharply over the past decade,” according to BlackRock research. “We’re watching whether a further fall in battery prices will feed through to final purchase prices and boost demand for energy storage, EVs, and hybrid autos – especially as their running costs are lower than for traditional internal combustion vehicles.”

Politics could also be relevant to investors considering PBD and PBW. The U.S. and European Union conduct national elections later this year. Those are two of the regions with the largest renewable energy commitments. Additionally, India, which needs to deal with significant decarbonization and pollution issues, heads to the polls later this year.

It’s not a guarantee that a 2020 sequel is in store. However, ETFs such as PBD and PBW trended higher in the run-up to the 2020 U.S. presidential election. With elections in the aforementioned regions still months away, predicting the future is difficult. But it’s clear political outcomes could become headwinds or tailwinds for clean energy equities as 2024 moves forward.

“In India, the election could result in policy continuity, paving the way for quicker decarbonization and bolstering the country’s efforts to become a bigger clean technology production hub. The U.S. election result could have implications for the Inflation Reduction Act – a 2022 law that has spurred major investment in, and demand for, energy infrastructure and technology. Changes could range from repeal or delays to complementary policy that increases its effectiveness, like land permitting reform,” concluded BlackRock.

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