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Time To Buy Clean Energy ETFs?

June 10th, 2014

clean-energyThe clean energy space was recently fueled by a slew of good news that drove the pack higher. First came a new move in Obama’s ‘climate change action plan’ and then came a pact between Solar City (SCTY) and Groupon (GRPN) along with reports of 79% higher installation of solar panels in the U.S. in the first quarter.

New Move in Climate Change Act

President Obama’s environmental plan now includes an astounding target of one third of greenhouse-emission reduction over the coming 15 years.  The proposal is expected to be approved next year.

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The plan calls for a 30% drop in carbon emissions by 2030 compared with the 2005 levels in a move to fight fast-increasing global warming worries. While Obama wanted the states to put forward their plans by June 2016, the new draft reveals an extension to 2017 and 2018 for states willing to join the clean energy drive.

Soaring Solar Space 

A major growth area in the renewable space is solar energy. Thus, any favorable news on solar ETF perks up the entire space. In late May, SolarCity – the largest U.S. residential solar installer – teamed up with Groupon to form one of the first online offers of its kind for solar systems, a new way to sign up more customers in the increasingly competitive rooftop solar market. This deal will undoubtedly push the reach of the evolving solar industry.

Moreover, the demand scenario is shaping up well for the sector as evident from the stellar Q1 installation number. According to an analyst, total solar panel installations will likely hit 6.6 gigawatts this year, thanks to the increased demand from residential rooftop systems and more than 12 gigawatts of work-in-progress utility projects. Due to this bullish trend, Guggenheim Solar ETF (TAN - ETF report) and Market Vectors Solar Energy ETF (KWT) added about 15.8% and 9.9%, respectively, this year.

A number of solar power stocks came up with accelerating earnings this season.First Solar (FSLR), Solar City and China’s second-largest Trina Solar (TSL) all have exceeded both on top and bottom lines (read: Solar ETFs Shine on Trina Solar Earnings Beat).

Though the recent levy of import duties on Chinese solar panels and related products by the U.S. will likely escalate tensions between the two nations, we believe broader market trends will be unscathed.

Bullish Industry Projection 

According to EIA, total consumption for renewables of electricity and heat generation will increase by about 3.3% in 2014. Demand for Hydropower is estimated to expand 2.9%, while non-hydropower renewables will likely rise by 3.6%.

EIA also projects that wind power capacity will grow 9.0% in 2014 and 15.5% in 2015. Coming to solar energy, EIA expects utility-scale solar capacity to expand 56% between 2013 end and 2015 end in the U.S. (read: Will the Clean Energy ETF Surge Continue in 2014?).

World-wide Push

Not only in the U.S., activity is also building up in other nations like China and Japan. China has already made a name for itself in this field. After the Fukushima disaster in March 2011 that stymied its nuclear power industry, Japan has also shifted focus toward renewable energy options.

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