Although global investment in renewables is still lower than that in fossil fuels, Russia’s invasion of Ukraine has accelerated the ongoing shift away from conventional energy and benefitted key holdings in the ACES ETF.
The ALPS Clean Energy ETF [ACES] share price has surged as the war in Ukraine highlighted the need for greater energy diversification and a transition away from Russian oil imports.
The ACES share price has risen 27.5% since the invasion began on 24 February to close at $62.07 on Friday 25 March.
The ACES ETF has benefitted from the move away from fossil fuels as its focus is not only on renewables but also cleaner and smarter energy technologies. Its primary holdings are US and Canadian firms in the solar, wind and hydropower industries, as well as energy management and storage, bioenergy and electric vehicles.
Energy transition benefits the ACES ETF
The conflict in Ukraine has led to a further hike in already high oil and gas prices given Russia’s position as one of the world’s largest producers of fossil fuel energy. It comes on top of supply constraints already hitting the market as economies ramped up again following the depths of the Covid-19 pandemic.
The US, UK and EU have all proclaimed the need to wean themselves off Russian oil and gas, with renewable and clean energy alternatives such as wind, solar and even nuclear expected to benefit.
“It’s important to position for the energy transition as much as it is to position for some future state of energy markets,” said Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, as reported by Financial Advisor.
The renewable energy sector, which has already rocketed in recent years as governments and businesses strive to meet carbon emissions targets, is expected to grow at a CAGR of 7.9% between 2022 and 2026, according to Research and Markets.
Despite some concerns that a switch away from Russian oil and gas could mean renewed focus on fossil fuel sectors such as the North Sea and Shale gas, there are still signs that governments around the world are stepping up investment in renewable energy.
ACES is still in red territory
The ALPS Clean Energy ETF has a year-to-date total daily loss of 3.13%, with higher gas prices in late 2021 and early 2022 partly blamed on faltering renewable energy output.
ACES has total assets worth $814m and around 50 holdings. Its main sector exposure is to solar, followed by wind and electric vehicles/storage. Solar panel group Enphase Energy [ENPH] has the biggest weighting with 5.44%, followed by hydrogen fuel cell provider Plug Power [PLUG] (5.38%), EV maker Tesla [TSLA] (5.34%) and solar panel group Sunrun [RUN] (5.3%). Other holdings include ChargePoint [CHPT] with 3.6% and EV maker Rivian [RIVN] with 4.32%.
Enphase Energy shares have rocketed by 31% over the past 12 months to 25 March, driven by customer demand for its panels and microinverter technology. It has also been boosted by acquisitions such as ClipperCreek, which providers EV charging solutions for residential and commercial customers.
Shares in Tesla, Rivian and ChargePoint have also been driven by new investment pledges from President Biden to ramp up the US’s electric vehicle charging infrastructure.
Plug Power shares have climbed 49% since the end of January to $27.95 at the close on 25 March. Morgan Stanley analysts have a price target of $60 on the stock given the expected growth in hydrogen technology and energy.
Slow and steady growth for clean energy sector
The indicators look strong for further growth in the ACES ETF, but it will take time and further investment for governments to ramp up clean energy infrastructure. As living costs continue to rise, consumers may not have as much disposable income to spend on solar panel installations and electric vehicles.
Investment in fossil fuel-based energy sources is expected to fall below demand, but investment in new and renewable technologies is still lagging demand, said IHS Markit, as reported by ETF Trends.
The shift away from Russian oil and gas could be the catalyst needed to accelerate the energy transition.
“It took the shock of the current (Russian) war to finally bring the energy security issue to the forefront,” Raymond James energy analyst Pavel Molchanov told ETF Trends. “Energy security and energy transition both point in the same direction, mutually reinforcing the shift away from fossil fuels.”