ACES Returns 32% in Renewable Energy Boom
News Summary
Despite double-digit gains this year, clean energy ETFs are struggling to attract assets. The ALPS Clean Energy ETF (ACES) has returned 31.9% year-to-date, according to ETF Trends. This outflow occurs even as renewables overtook coal as the biggest source of global electricity for the first time in the first half of 2025, with global renewable power capacity projected to double over the next five years. ACES aims to capture the performance of North American clean energy stocks, holding 48 companies across solar, wind, electric vehicles, battery storage, biofuels, hydrogen, and geothermal energy. Its top holdings include Nextracker Inc., Eos Energy Enterprises, Inc., and First Solar, Inc. EV manufacturers like Tesla, Rivian, and Lucid also represent a significant portion of the fund. The U.S. ranks second globally in new solar growth. The current clean energy boom in the U.S. is partly driven by businesses rushing to utilize Biden-era clean energy tax credits before their expiration, although solar, batteries, and onshore wind remain among the cheapest and fastest forms of energy to install even without federal tax credits.
Background
The world is undergoing a structural shift towards renewable energy, with solar and wind having surpassed coal as the primary global electricity source for the first time in the first half of 2025. Global renewable power capacity is projected to double significantly over the next five years, increasing by 4,600 gigawatts, indicating an accelerating energy transition. The United States plays a crucial role in this transition, ranking second globally in new solar growth. Despite Donald J. Trump being the incumbent US President, the current growth momentum in the clean energy sector is partly attributed to clean energy tax credits from the prior administration, which are set to expire in 2025. These policies have spurred corporate investment in technologies like solar, wind, and battery storage.
In-Depth AI Insights
What are the long-term implications of the expiration of "Biden-era" clean energy tax credits under a Trump administration for the sector? - While clean energy is increasingly cost-competitive on its own merits, the phasing out of tax credits will create short-term policy uncertainty, potentially dampening new investment enthusiasm. - The Trump administration's "energy independence" agenda may lean towards an all-of-the-above approach, including fossil fuels, potentially leading to reduced direct support for renewables and a re-evaluation or repeal of further federal incentives. - Investors will closely monitor state-level policy support and corporate hedging strategies to navigate potential federal policy vacuums or shifts, which could lead to uneven geographical investment distribution. Why are clean energy ETFs struggling with asset inflows despite strong performance and fundamental sector growth? - Historical volatility is a significant factor: ACES's -13.2% three-year annualized return may have eroded investor confidence in the sector's long-term growth story, leading to caution despite recent spikes. - Lagging market sentiment: Fund inflows often trail actual performance, with investors potentially still digesting past losses or awaiting clearer long-term trend signals, especially amid policy uncertainties. - Perceived risks: Despite growing cost-effectiveness, investors may still associate the sector with high-growth, interest-rate sensitive, and policy-dependent risks. How might the composition of clean energy ETFs evolve given rapid technological advancements and potential policy shifts? - Future ETFs may increasingly favor companies that achieve cost leadership through technological innovation rather than subsidies, particularly in battery storage, smart grid technologies, and advanced materials. - As the U.S. "energy independence" agenda evolves, ETFs might adjust holdings to reflect potential investment tilts towards non-traditional "clean" energy forms like nuclear power, carbon capture, or novel hydrogen applications. - Increased investment from large tech companies and traditional utilities in the clean energy space could also prompt ETFs to include more cross-sector integrated players rather than purely specialized renewable energy firms.