Alternative energy, green power solutions as they are called, is
the most discussed topic these days given the ardent attempt to
combat global warming worldwide.
Solar and wind are gradually transforming the way we produce and
consume energy, driving the ongoing global energy transition.
Although some better-established sources of alternative energy -
hydro, wind, biomass and waste, not to mention solar photovoltaics
("PV") - are supported extensively, niche renewable energy sources
such as geothermal and concentrated solar power are also on the
rise, natural conditions permitting.
Per the latest report released by the Solar Energy Industries
Association ("SEIA"), the U.S. solar energy industry grew 41% year
over year to reach 1,354 megawatt ("MW") in the third quarter of
2014. This marked the second-largest quarter of solar installations
in the history of the market, buoyed by the utility solar PV
market. As of Sep 2014, more than 36% of all new electricity
generation came from solar energy (read:
Will Solar ETFs Shine on Apple-First Solar
In addition, the current U.S. administration's efforts to restrict
carbon emissions are a net positive for renewable energy stocks. A
proposed Clean Power Plan of the Environmental Protection Agency
would reduce carbon emission from power plants by 30% by 2030,
compared to the levels in 2005. Again, President Barack Obama's
fiscal 2016 budget proposal, unveiled on Feb 2, seeks an
approximate 7.2% rise in funding for clean energy (read:
Obama Budget Plan Drives Up These Sector ETFs
The U.S. Energy Information Administration ("EIA") expects
utility-scale solar capacity to expand over 60% between the end of
2014 and the end of 2016 (read:
Green & Dirty ETFs to Watch on Clean Climate
Residential solar in the U.S. is also a sizzling story. This market
has begun to attract more conventional electric power companies
that mostly have coal and natural gas as fuel sources. As per SEIA,
residential PV installation grew 58% year over year in the third
quarter of 2014.
Just as pro-environment regulations have given a boost to the
alternative energy sector, trade conflicts between some of the
major solar product manufacturing countries have complicated the
landscape. Solar trade relations have particularly heated up with
China and the U.S. trying their level best to protect homegrown
Washington is planning to impose new import duties on solar panels
and other related products from China and Taiwan. The new duties
would further escalate trade tensions between the two countries at
a time when the two nations were planning to work together in the
common fight against global warming and carbon emissions. The U.S.
believes that Chinese manufacturers have hitherto benefited from
unfair subsidies offered by their government.
Globally, China, the world's prime manufacturer of solar panels, is
emerging as the market leader for solar PV to meet the growing need
for clean energy. While the U.S. and China have been playing a big
role in recent years in driving the industry, the latest to join
this list is Asia's third largest economy, India. Recently, the
government in India raised its solar investment target to $100
billion by 2022. This has kindled the interest of the solar players
in the Indian market (read:
Renewable Energy: Opportunities to Invest?
Among the other renewable resources, the wind industry grew
radically during the first nine months of 2014. As per EIA, wind
capacity grew by 10% between 2012 and 2014 and is expected to
increase by 23% between 2014 and 2016. The EIA expects wind
capacity to expand twofold as compared to solar as the former is
starting from a much larger base than the latter - 15 gigawatts
("GW") of wind versus 6 GW of utility-scale solar (read:
Alt-Energy Stock Outlook
ETFs to Tap the Sector
For investors seeking to play this trend in ETF form, the following
series of alternative energy ETFs could make interesting picks.
WilderHill Clean Energy Portfolio
Launched in March 2005, PBW tracks the WilderHill Clean Energy
Index and manages an asset base of $139.3 million which it invests
in a portfolio of 53 stocks.
It is well diversified across various sectors. Information
Technology takes the top spot with a 41.58% allocation followed by
Industrials (24.16%) and Utilities (14.86%).
The fund's top 10 holdings jointly contribute 27.32%. The product
invests almost 90% in companies that are involved in the generation
of cleaner energy. It charges a hefty 70 basis points in fees.
Market Vectors Global Alternative Energy ETF
Launched in May 2007, GEX tracks the Ardour Global Index, focusing
on companies that are primarily engaged in the business of
alternative energy comprising solar power, bio energy, wind power,
hydro power and geothermal energy.
The fund holds about 31 stocks in its pocket, has assets under
management of $95.4 million and charges an expense ratio of 62
basis points annually.
Apart from robust holdings in the U.S., the product offers solid
exposure to China and some European countries. From a sector
perspective, Industrials and Information Technology take the
largest share with a respective 47.7% and 28%. Further, the fund's
top 10 holdings jointly contribute 64.18% to the fund. Vestas Wind
Systems A/S, Tesla Motors Inc. (TSLA) and Eaton Corp Plc (ETN) are
the top three holdings, with 29.79% of asset allocation in total.
Global Clean Energy Portfolio
This ETF follows the WilderHill New Energy Global Innovation Index,
giving investors exposure to about 104 companies that are engaged
in renewable sources of energy and technologies facilitating
Assets under management are just over $64.6 million and the expense
ratio is 81 basis points a year. In terms of performance, PBD has
rewarded investors with returns of 30.29% in a 3-year span. The
fund's top 10 holdings contribute 19.3% to it.
PBD is heavy in Industrials, as this represents 36.81% of the fund.
This is followed by Information Technology (32.11%) and Utilities
(20.15%). In terms of countries, the U.S. dominates with 32.07%
followed by China with 15.25%.
First Trust Nasdaq Clean Energy Green Energy Index
This ETF tracks the NASDAQ Clean Edge Green Energy Index and
follows a benchmark of clean energy companies, giving exposure to
48 such companies in total with an asset base of $83.3 million. The
fund charges investors 60 basis points a year in fees for the
exposure. The top 10 holdings comprise 57.91% of the total fund.
Importantly, this product has rewarded investors with a 3-year
return of 59.50%.
Technology firms dominate this ETF, accounting for 38.17% of the
assets. Beyond Technology, Oil and Gas stocks make up about 22.40%,
while Industrials, Consumer Services and Consumer Goods hold
17.87%, 22.40% and 17.87%, respectively. In terms of geographical
diversification, the fund is almost entirely focused on the U.S.
iShares Global Clean Energy ETF
This ETF tracks the S&P Global Clean Energy Index with 30
holdings and an asset base of $62 million. ICLN has given a 3-year
return of 17.10% and charges investors 47 basis points a year in
fees for the exposure.
In terms of geographical breakdown, China leads the list with
38.08%, while the U.S holds the second spot with 22.18%. ICLN is
more inclined toward Semiconductors & Semiconductor Equipment,
representing 33.06% of the fund, though Independent Power and
Renewable Electric (22.81%), Electrical Equipment (20.72%), and
Electric Utilities (11.68%) receive big chunks as well. The fund
appears to be highly concentrated in the top 10 holdings with a
share of 58.48%.
The depletion of fossil fuel reserves, new and advanced
technologies, accompanied with more competent alternative energy
applications have made green power more feasible, injecting
optimism into the sector. Yet, investors should closely track the
political factors that could impact the sector. These include
eco-friendly mandates and renewable energy agendas to see if
potential benefits will spill over to the renewable companies and
the sector ETFs.
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PWRSH-W CL EGY (PBW): ETF Research Reports
MKT VEC-GLBL AE (GEX): ETF Research Reports
PWRSH-GLB CL-EY (PBD): ETF Research Reports
NASDAQ-CL EDG G (QCLN): ETF Research Reports
ISHARS-GL CL EN (ICLN): ETF Research Reports
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