As investors embarked on the clean energy journey in recent years, they now find themselves navigating through a challenging detour this year in the transition to cleaner energy sources.
Various related themes have hit rough patches due to a combination of factors.
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Bumps in the Road: High Interest Rates
The financial landscape has become rocky for clean energy projects, suffering delays or cancellations amidst skyrocketing financing costs. Notably, Bloomberg’s New Energy Finance indicates a 60% surge in offshore wind project costs due to higher interest rates. The impact is even more profound in Emerging Markets where elevated credit risks loom large. The International Energy Agency foresees a substantial $2 trillion gap in clean energy financing between developed and emerging economies by 2030.
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Speed Bumps: Lower EV Demand
The acceleration in interest rates has further widened the price gap between electric vehicles (EVs), hybrids, and traditional gas-powered cars. The average price tag for the top 10 electric vehicles in the U.S. stands at a hefty $53,758. Alongside elevated interest rates, EVs face the added burden of costly battery technology, with prices still hovering around the mid $130 per kilowatt hour range. On a bright note, metal prices are sliding downwards, with lithium prices plummeting by 80% in the past year due to oversupply, particularly from Australia. Moreover, new, cheaper, and higher-capacity battery innovations are on the horizon. However, for the time being, hybrids and conventional gas vehicles maintain their allure as the more cost-effective options.
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Finding the Right Path: The Need for Infrastructure
While governmental initiatives are finally directing funds towards the necessary infrastructure for a cleaner energy future, progress is sluggish, entrenched in bureaucracy, and faces the looming challenge of a multi-decade timeline for completion. It’s only now that states like Kentucky are witnessing installations of their maiden high-capacity public EV charging stations, backed by the 2021 Inflation Reduction Act. Furthermore, the absence of globally standardized charging norms remains evident, although Tesla is spearheading advancements in the fast-charging energy infrastructure realm.
Amidst the detour on the clean energy roadtrip, patient thematic investors might discover attractive entry points. Let’s explore some of the ETFs in the sector that have dipped more than 10% since the start of the year.
Struggling Clean Energy ETFs Down >10% YTD
| Symbol | ETF Name | Total Assets | YTD |
| HYDR | Global X Hydrogen ETF | $34,477,900 | -22.43% |
| TAN | Invesco Solar ETF | $1,363,680,000 | -20.06% |
| ACES | ALPS Clean Energy ETF | $252,984,000 | -19.03% |
| HDRO | Defiance Next Gen H2 ETF | $21,131,600 | -18.91% |
| QCLN | First Trust NASDAQ Clean Edge Green Energy | $882,926,000 | -18.62% |
| CTEC | Global X CleanTech ETF | $51,544,300 | -17.61% |
| FRNW | Fidelity Clean Energy ETF | $26,455,800 | -16.58% |
| CTEX | ProShares S&P Kensho Cleantech ETF | $5,106,400 | -15.93% |
| RAYS | Global X Solar ETF | $6,202,780 | -15.20% |
| PBD | Invesco Global Clean Energy ETF | $125,870,000 | -14.84% |
| HJEN | Direxion Hydrogen ETF | $25,502,400 | -14.06% |
| SMOG | VanEck Low Carbon Energy ETF | $143,303,000 | -13.67% |
| CNRG | SPDR S&P Kensho Clean Power ETF | $222,918,000 | -13.26% |
| RNRG | Global X Renewable Energy Producers ETF | $40,398,900 | -12.77% |
| WNDY | Global X Wind Energy ETF | $2,527,620 | -12.11% |
| ERTH | Invesco MSCI Sustainable Future ETF | $200,507,000 | -11.57% |
| ICLN | iShares Global Clean Energy ETF | $2,534,330,000 | -11.18% |
| RNWZ | TrueShares Eagle Global Renewable Energy Income | $2,253,950. | -10.84% |
| VCLN | Virtus Duff & Phelps Clean Energy ETF | $6,692,070 | -10.21%
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Source: ETFdb
Alongside clean energy-specific turbulence, several downstream electric vehicle plays, including lithium battery and green metal ETFs, have also veered off the growth trajectory this year due to similar headwinds.
Drifting Metal ETFs Down >10% YTD
| Symbol | ETF Name | Total Assets | YTD |
| LIT | Global X Lithium & Battery Tech ETF | $1,613,720,000 | -16.06% |
| BATT | Amplify Lithium & Battery Technology ETF | $89,649,500 | -15.38% |
| WBAT | WisdomTree Battery Value Chain and Innovation | $4,112,800 | -10.12% |
Source: ETFdb
Essential Metal ETFs Down >10% YTD
| Symbol | ETF Name | Total Assets | YTD |
| REMX | VanEck Rare Earth/Strategic Metals ETF | $330,814,000 | -21.54% |
| GMET | VanEck Green Metals ETF | $23,355,000 | -12.79% |
| CRIT | Optica Rare Earths & Critical Materials ETF | $1,965,650 | -12.14% |
| DMAT | Global X Disruptive Materials ETF | $5,779,520 | -12.10% |
Source: ETFdb
Currently, the Federal Reserve is awaiting further evidence of easing inflation before embarking on rate cuts. Clean-energy-related sectors could witness a significant boost once the rate-cutting cycle commences, steering them back onto the path of growth.
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The opinions expressed here are solely those of the author and do not necessarily reflect the views of Nasdaq, Inc.
