Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | The renewable energy industry which includes alternative sources from solar, wind, water, geothermal, and nuclear, is ramping up as investors become more socially conscious and corporations start to understand the long-term benefits.
According to ResearchAndMarkets, the renewable energy market accounted for US$928 billion of revenue in 2017 and is anticipated to reach US$1.5 trillion by 2025 at a CAGR of 6.1%.
Growth in the industry is attributed to (1) reduced costs in scaling major renewable energy sources such as wind and solar, and more affordable battery storage; (2) increased demand from emerging markets that do not have fossil fuel infrastructure and wants to build a pollution-reduced economy; and (3) continued support from government through policy changes, subsidizations, and investments.
In 2014, renewable energy investments from corporations were mainly driven by government incentives as renewable energy only accounted for 19.2% of the global energy consumption, according to the International Renewable Energy Agency (IRENA).
Renewable energy is expected to be the main source of global energy consumption within the next decade as the Carbon Tracker Institute reported that fossil fuel demand is forecasted to hit a peak in 2020 as energy use for electricity increases and companies start to voluntarily adopt renewable energy sources.
Fossil fuel companies have been in the middle of political and social turmoil as major oil pipelines such as the Keystone XL pipeline have constantly been criticized and halted as environmentalists push governments to enact policies to limit fossil fuel consumption. In addition, with US$25 trillion in fixed assets within the fossil fuel industry, there is massive systemic risk from rent costs as global demand for fossil fuels go down.
Resource companies such as Altius Mineral Corporation are also looking towards the quickly growing renewable energy market to diversify and take advantage of new revenue streams. In Feb 2019, Altius announced that it had invested US$30 million into Tri Global Energy, LLC, a leading wind energy project developer, for a 3% gross royalty on each project implemented with the funds.
There has been a significant increase in the number of renewable energy ETFs that are being created for the mass of socially conscious investors that are looking to diversify their portfolios.
Below are two U.S. clean energy ETFs and two Canadian clean energy mutual funds
ALPS Clean Energy ETF (BATS: ACES)
- The ETF was incorporated in the United States and launched in 2018.
- ACES focuses on tracking a market-cap-weighted index of North American companies in the clean and renewable energy industry, and has 32 holdings with major holdings that include Enphase Energy Inc, Universal Display Corp, and Pattern Energy Group Inc.
- Currently has total assets of US$86 million, a 0.65% expense ratio, and last traded at US$30.87 per share, a 37.4% increase year-to-date.
iShare Global Clean Energy ETF (NASDAQ: ICLN)
- The ETF was incorporated in the United States and launched in 2008.
- ICLN focuses on the clean energy sector and holds 30 companies in both domestic and international countries, with major holdings including Solaredge Technologies Inc., Ormat Tech Inc., and Contact Energy Ltd.
- Currently has total assets of US$310 million, a 0.46% expense ratio, and last traded at US$10.95 per share, a 33.5% share price increase year-to-date.
Skyline Clean Energy Fund
- The fund was incorporated in Canada, launched in 2018, and is eligible for investment in RRSP, TFSA, and RRIF with a minimum C$50,000 investment.
- SCEF is an equity investment fund that holds 32 companies focused on renewable energy producing assets backed by long-term power purchase contracts.
- Currently has total assets of C$57 million and a unit price of C$11.07, a 10.7% increase year-to-date.
AGF Clean Environment Equity Fund
- The fund was incorporated in Canada, launched in 2009, and is eligible for investment in RRSP, TFSA, and RRIF with a minimum investment of C$50 PAD or C$25 lump sum and MER of 3.71%.
- AGF is a fund that invests in small, medium and large cap companies focused on sustainable development anywhere in the world, with major holdings including Secure Energy Services Inc., Pentair Ltd, and Mas Tec Inc.
- Currently has total assets of C$920,000 and a NAV of C$106.50, a 14.13% increase year-to-date.
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