Clean Energy Etfs: A Guide To Investing In The Future

Clean energy ETFs are a great way to invest in the future of our planet. With climate change an ever-growing concern, the clean energy market is an attractive prospect for investors. Clean energy ETFs are exchange-traded funds that invest in stocks in the alternative energy sector, including solar, wind, hydroelectric, and geothermal energy companies. They are a great way to diversify your portfolio and are usually less expensive than mutual funds.

There are a variety of clean energy ETFs to choose from, with some specialising in one form of alternative energy, such as solar, and others offering broader exposure to the alternative energy industry as a whole. Some of the most popular clean energy ETFs include the iShares Global Clean Energy ETF, the Invesco WilderHill Clean Energy ETF, and the First Trust NASDAQ Clean Edge Green Energy ETF. These funds offer exposure to a range of clean energy companies and have performed well in recent years.

When considering investing in clean energy ETFs, it is important to keep in mind your investment goals, timeline, and personal beliefs. Clean energy ETFs can be volatile, so they may not be suitable for short-term investments. However, with renewable energy sources becoming an increasingly important part of the global energy mix, the clean energy sector is expected to continue to grow, making it an attractive prospect for long-term investors.

Solar energy stocks

ETFs

Exchange-traded funds (ETFs) are a great way to invest in solar energy without picking individual stocks. ETFs are baskets of stocks that trade on an exchange like a stock, and they offer diversification and lower risk compared to investing in individual stocks. Here are some ETFs that focus on solar energy:

• Invesco Solar ETF (TAN): This ETF invests solely in solar stocks and has about 40 solar companies in its portfolio, with just over half of its assets in US companies such as Enphase Energy. The rest of its assets are allocated to firms in other countries, with China leading the international exposure.
• IShares Global Clean Energy ETF (ICLN): This ETF takes a diversified and global approach to clean energy investing and has a portfolio of about 100 of the biggest-name stocks in the space, including solar power firms. It has about 35% of its portfolio in the US and also invests in top players in Europe.
• First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN): This ETF includes some solar energy stocks such as First Solar, as well as tangential plays on clean energy technology such as electric vehicle manufacturers.
• First Trust Global Wind Energy ETF (FAN): While this ETF focuses on wind energy, it also includes some solar energy stocks in its portfolio of about 60 companies.
• ALPS Clean Energy ETF (ACES): This ETF has a broader definition of clean energy and includes some solar energy stocks such as Enphase Energy.

Individual Stocks

If you want to invest in individual solar energy stocks, here are some things to consider:

• Diversification: Investing in individual stocks is riskier than investing in ETFs, so make sure you diversify your portfolio and don't put all your eggs in one basket.
• Research: Always research a stock before buying it. Consider factors such as how long the company has been in business, its annual revenue, and its ESG (environmental, social, and governance) score.
• Cost: Clean energy stocks can vary in price, with some, like Tesla, being fairly expensive, and others, like NextEra Energy, being more affordable.
• Volatility: Clean energy stocks can be volatile due to factors such as new legislation, oil prices, and public interest.
• Enphase Energy Inc. (ENPH): This company is a leading provider of solar microinverters, which are devices that optimize energy production in solar panels.
• First Solar Inc. (FSLR): This company is a leading manufacturer of thin-film solar panels and has projects all over the world.
• SunPower Corporation (SPWR): SunPower is a solar panel technology company that designs and manufactures high-efficiency solar panels and energy storage solutions.
• Canadian Solar Inc. (CSIQ): Canadian Solar is one of the world's largest solar power companies, providing integrated solutions including solar power products, services, and systems.
• SolarEdge Technologies (SEDG): SolarEdge is the largest maker of solar inverters, which convert direct current from solar panels into alternating currents used in homes and electrical grids.

Wind energy stocks

Wind energy is a rapidly growing clean power source, producing about 10% of U.S. power in 2023. With ambitious goals set by the Biden administration to achieve 100% clean electricity by 2035, demand for wind energy is expected to increase. This makes it an attractive sector for investors. Here are some of the top wind energy stocks and ETFs to consider:

First Trust Global Wind Energy ETF (FAN)

This ETF is a good option for investors who want to focus specifically on wind energy technology. It has about 60 holdings in companies that are specialists in wind turbines and related technology. The portfolio includes Denmark's Vestas Wind Systems, one of the biggest names in wind power, as well as utilities like Orsted. The ETF has a global reach, with only about 17% of its assets in U.S. companies. It has an expense ratio of 0.60%, or $60 annually for every $10,000 invested.

NextEra Energy

NextEra is a major renewable energy company and one of the largest producers of wind power globally. About 60% of its generation capacity is from wind energy. The company is actively developing new wind energy projects and expects to build up to 11.5 GW of new wind energy capacity by 2027. It also has a strong track record of increasing shareholder value.

GE Vernova Inc. (GEV)

GE Vernova is a spinoff from General Electric and generates electricity through renewables, including wind turbines. It also has a dedicated segment that manufactures and sells wind turbine blades and equipment. While it is not a pure wind play, it has a large market capitalization and good trading liquidity.

Vestas Wind Systems (VWDRY)

Vestas is a leading global name in wind power, with the largest market capitalization among wind energy companies. It reported nearly $1.8 billion in revenue for fiscal 2023. The company is highly respected for its sustainability efforts and has committed over $540 million to research. Vestas focuses solely on manufacturing, installing, and servicing wind turbines and wind power solutions.

Orsted (DNNGY)

Orsted is a Denmark-based company with a unique history, originally starting as a state-owned oil and gas company. It has since divested its legacy business and now focuses entirely on green energy. The company built the world's first offshore wind farm in 1991 and is working towards a goal of 22 GW of offshore wind capacity by 2030. It also has 3.8 GW of onshore wind assets in the U.S. and Europe.

Brookfield Renewable (BEPC)

Brookfield Renewable is a leading global clean energy infrastructure company with a diversified approach. It has significant wind assets, with 11.3 GW of utility-scale wind power and 5.7 GW of distributed generation capacity. The company has a growing sustainable solutions platform and a high-yield dividend of over 5% in mid-2024.

Clearway Energy (CWEN, CWEN.A)

Clearway Energy is one of the largest renewable energy operators in the U.S., with over 6.5 GW of wind and solar energy projects. It has stable cash flow backed by long-term contracts, allowing it to pay an attractive dividend of almost 6% in mid-2024. The company acquires operating wind and solar power plants from developers to recycle capital into new investments.

Hydroelectric stocks

Hydroelectric power, or hydropower, is electricity generated by the flow of water. While hydropower facilities are dependent on being located near sources of water, there is potential for further construction both inland and in coastal waters. Hydropower accounts for 16% of total electricity production globally.

There are not many publicly traded companies that focus solely on hydroelectric power, and dedicated indexes and exchange-traded funds (ETFs) are hard to come by. That may mean focusing on indexes and ETFs for alternative renewable energy. Stocks are typically utilities that can build large-scale electricity-generation facilities.

• Brookfield Renewable Partners LP (NYSE: BEP) focuses on renewable energy and operates in more than 30 countries in North America, South America, Europe, and Asia. Hydroelectric power accounted for about 75% of its total revenue in 2022.
• IDACORP (NYSE: IDA) controls Idaho Power Company, a regulated electric utility that operates 17 hydropower plants that draw water from a river and its tributaries in the state. Its renewable energy mix also includes geothermal generation.
• Ocean Power Technologies Inc. (NYSE: OPTT) develops systems that generate electricity by harnessing the renewable energy of ocean waves.
• Portland General Electric Company (NYSE: POR) is expanding its use of renewable energy, shifting away from coal and other fossil fuels. Because the focus is on Oregon and there are few rivers and tributaries on which to build, potential construction of additional hydropower facilities within the state is finite.

There are also several renewable energy ETFs that include hydroelectric power in their portfolio:

• Invesco WilderHill Clean Energy ETF (NYSEMKT: PBW): $333.3 million in assets under management (AUM)
• First Trust Global Wind Energy ETF (FAN): $190 million in AUM
• ALPS Clean Energy ETF (ACES): $200 million in AUM

Biofuel stocks

Biofuel is a type of renewable energy derived from living material known as biomass. Examples of biofuels include ethanol, biodiesel, green diesel, and biogas. The global biofuels market was valued at US$151.44 billion in 2022 and is expected to reach US$220.87 billion in 2027. The driving forces behind the rising demand for biofuels include the growing need for alternatives to gasoline in road transportation and government mandates to blend automotive fuels with biofuels.

• OPAL Fuels (NASDAQ: OPAL): OPAL Fuels is a renewable energy company that specializes in capturing and converting biogas into renewable natural gas (RNG). The company has a fully integrated vertical waste-to-energy model and creates fuel for use in trucking fleets and renewable power for utilities. Its current market cap is US$1.33 billion, and its share price is US$7.74.
• REX American Resources (NYSE: REX): REX American Resources has interests in six ethanol production facilities and is the majority owner of two of them. These facilities shipped nearly 695 million gallons of ethanol over a 12-month period ending July 31, 2023. The company's market cap is US$642.21 million, and its share price is US$36.73.
• Alto Ingredients (NASDAQ: ALTO): Alto Ingredients is a producer of industrial and beverage alcohols, premium feed and food products, and low-carbon renewable fuel in the form of ethanol. The company has seven distilleries across the US and a market cap of US$308.58 million. Its current share price is US$4.07.
• FutureFuel (NYSE: FF): FutureFuel is a developer and producer of diversified chemical products, specialty organic chemicals, premium biodiesel, and other biofuels. It launched its biofuels product platform in 2005 and now has a biodiesel production capacity of 59 million gallons per year. FutureFuel's market cap is US$299.34 million, and its share price is US$6.84.
• Gevo (NASDAQ: GEVO): Gevo is a renewable chemicals and next-generation biofuels company headquartered in Colorado. It produces isobutanol, ethanol, and high-value animal feed at its fermentation plant in Minnesota. The company also operates a biorefinery in Texas that converts alcohols into products such as renewable jet fuel, octane, and ingredients for plastics. Gevo's market cap is US$250.46 million, and its share price is US$1.06.
• Aemetis (NASDAQ: AMTX): Aemetis is an advanced renewable fuels and biochemicals company that produces advanced fuels and chemicals. It owns and operates a 65 million-gallon-per-year fuel ethanol plant in California and a 50 million-gallon-per-year integrated fuels and chemical production facility in India. Aemetis has a market cap of US$163.93 million and a share price of US$4.22.
• Archer-Daniels-Midland (NYSE: ADM): Archer-Daniels-Midland is a large agriculture company with a global presence. It provides feedstocks for creating biofuels and produces biodiesel from vegetable oils in the EU, Brazil, Canada, and the US. The company offers reliable investments and rewards investors with bigger dividends each year.
• Darling Ingredients (NYSE: DAR): Darling Ingredients is a Texas-based company with over 200 processing plants worldwide. It focuses on reducing food waste and creates the key ingredient for renewable diesel from used cooking oil and meat by-products. Darling Ingredients provides direct exposure to renewable energy production and is well-positioned to benefit from companies' sustainability goals.
• Green Plains (Nasdaq: GPRE): Green Plains is a leading ag-tech company based in Omaha, Nebraska. It is one of the largest ethanol fuel producers in North America, with more than 10 biorefineries throughout the US. The company processes roughly 300 million bushels of corn each year and is a top biofuel stock to consider.
• CanaQuest Medical Corp. (NYSE: CANQF): CanaQuest Medical Corp., formerly known as Algae Dynamics, is a Canadian company that makes treatments with its endocannabinoid system. The company focuses on developing products that combine the health benefits of Omega-3 essential fatty acids derived from algae oil and extracts of cannabis and botanical oils.
• Comstock Inc. (NYSE: LODE): Comstock is a Texas-based company that converts wasted and unused biomass feedstock into cellulosic ethanol and drop-in fuels. The company has filed for patents covering breakthrough pathways to produce renewable diesel, marine fuel, sustainable aviation fuel, and gasoline from woody biomass. Comstock is also a notable dividend payer in the industry, with a dividend yield of about 4%.
• Amyris, Inc. (NASDAQ: AMRS): Amyris, Inc. is a California-based company that was once a pure-play biofuels company. It has since changed its business model and now focuses on the skincare industry, using biosynthesis to create oil for moisturizers and personal care products. Amyris still operates in the biology space, providing sustainable skincare solutions to major brands.

Energy economy stocks

Tata Power Company Limited

Tata Power is one of India's most prominent integrated power companies, actively growing its green energy fleet with a strong focus on solar and wind power projects. The company aims to achieve a production capacity of 25% from green sources by 2025 and has a diverse footprint across multiple states in India, constantly exploring possibilities in foreign markets as well.

Adani Green Energy Limited

Adani Green Energy, a part of the Adani Group, is a major green energy company in India with an excellent collection of solar and wind power projects. The company has set lofty goals for green energy output and is well-positioned to meet the growing demand for clean energy in the country.

ReNew Power Private Limited

ReNew Power is a significant player in India's green energy field with a diverse collection of wind and solar power projects. The company has ambitious growth plans and is well-positioned to capitalise on the increasing demand for clean energy. ReNew Power has a strong focus on technological innovation and has collaborated with top foreign companies to create cutting-edge green energy solutions.

Suzlon Energy Limited

Suzlon Energy is a world leader in the wind energy business, based in India. The company manufactures wind blades and provides end-to-end solutions for wind farm development and operation. Suzlon has a strong global presence and continuously invests in research and development to enhance its product offerings.

Inox Wind Limited

Inox Wind is a major manufacturer of wind turbine engines and a provider of complete solutions for wind power projects. The company has a strong foothold in the Indian market and is expanding its global reach. Inox Wind has a robust order book and is well-positioned to benefit from the growing demand for wind energy options.

These companies demonstrate the potential for growth in the energy economy sector, offering investors opportunities to align their financial goals with sustainable and environmentally conscious practices.

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