Clean energy stocks and ETFs are ready to shine

  • By Sophia Cai,
  • Barron's
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In the past, renewable energy-sector exchange-traded funds have consistently underperformed the S&P 500 (.SPX) and Nasdaq Composite (.IXIC). The clouds, however, may be starting to lift for the sector.

The past five years haven’t been good to clean-energy stocks. The Invesco Solar ETF (TAN), comprised of 22 various solar industry companies, fell 41.3% over that period, while the iShares Global Clean Energy ETF (ICLN), the largest exchange-traded fund in the U.S. investing in clean energy, dropped 9.2%, well below the S&P 500’s 13.5% rise.

Not 2019. The Invesco Solar ETF has gained 35.2%, almost triple the 13.4% return for the S&P 500, while the iShares Global Clean Energy ETF has risen 19.3%.

What’s behind the sector good fortune? After years of depending on regulation for growth, the clean-energy industry can now sell itself as the most cost effective source of electricity generation. Thanks to falling costs, some are beginning to out-compete traditional high-carbon energy resources like oil, coal and natural gas.

Costs of unsubsidized solar PV have fallen from $359/MWh to $43/MWh, a 88% decrease over the last nine years. Unsubsidized wind saw similar cost reductions over the same period: from $135/MWh to $42/MWh, a nearly 70% decrease. Prices have come down so much that in some regions of the U.S., U.K. and Europe, wind power has become cheaper than carbon or nuclear alternatives. Wind projects in Germany, for example, are bid entirely on a market basis.

“The economics are now very good,” said Bruno Bertocci managing director of UBS Asset Management Sustainable Equity Investors. “If the economics are there and it’s cheaper than the alternative, that trend’s going to keep right on going.”

As costs continue to fall and clean energy becomes mainstream, clean-energy companies should experience accelerating growth and become better investment opportunities. NextEra Energy (NEE) is predicted to grow its earnings-per-share at an 8.8% clip in 2020, while Xcel Energy (XEL) should grow at a 6.4% clip. Their stocks have risen 16.2% and 18.8% respectively in 2019.

Prospects for wind and solar technology are most upbeat since they have learned to stand on their own without subsidies.

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