Corporate Adoption Of Renewable Energy Bodes Well For This ETF

Alternative energy exchange traded funds are among the best-performing non-leveraged ETFs this year, a sentiment that holds true for solar, wind and diversified funds dwelling this space.

The ALPS Clean Energy ETF ACES is a participant in the renewable energy ETF resurgence this year. ACES, which provides broad-based to multiple clean energy themes, including scorching hot solar. The fund is up nearly 37% year to date.

ACES, which debuted in June 2018, provides exposure to seven alternative energy themes: wind, smart grid, solar, geothermal, biomass, electric vehicles and fuel cells.

Why It's Important

Increased adoption of alternative energy sources by large corporations, such as Amazon.com AMZN and Apple AAPL, is seen as a primary driver of future returns for some ACES components.

“US corporate renewable procurement is surging, with more than 6 GW of direct, indirect, and financial power purchase agreements announced in 2018, more than double that of the prior year,” said IHS Markit in a recent note. “This surge is being fueled by shareholder and consumer pressure, the opportunity to hedge power costs, and corporate renewable targets, and is leading IHS Markit to increase its outlook for wind and solar deployment in the coming decade.”

At the corporate level, companies typically deploy solar and efficiency/LED projects for their power needs. Those sub-industries combine for almost 43% of ACES' weight. While technology companies are leading the way in terms of green energy adoption, other sectors are joining the party.

“An increasingly diverse pool of companies are purchasing renewables. Oil and gas companies have recently jumped into the market for project-specific renewable contracting, with ExxonMobil and Shell inking three deals at the end of 2018 for a cumulative 600 MW of wind and solar,” according to IHS Markit.

What's Next

Corporate procurement of renewables is expected to continue and grow at a rapid, potentially cementing ACES' status as strong long-term idea.

“IHS Markit expects large corporations' renewable targets to drive about 60 GW of new capacity additions, through project-specific contracting, from 2019 to 2040,” said the research firm. “IHS Markit expects further growth of renewable capacity driven by large corporate procurements, with shifting trends between wind and solar and expansion of activity in to other markets in the future.”

Wind stocks account for more than 29% of ACES' weight.

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