Despite promises of an investment boom in renewable energy, the SPDR S&P Kensho Clean Power ETF [CNRG] has been blown off course so far this year, falling 8.4% in the year to date (through 6 August).
The fund had started the year by soaring 362.3%, from $31.60 on 8 February 2020 to $146.08 at the close on 9 February 2021, boosted by enhanced political, public and investor interest in sustainable innovations — such as electric vehicles (EV), wind plants and solar installations — during the coronavirus pandemic.
According to the International Renewable Energy Agency, more than 260GW of renewable energy capacity was added globally in 2020, beating the previous record by nearly 50%.
YTD returns fall of the SPDR S&P Kensho Clean Power ETF
However, the SPDR S&P Kensho Clean Power ETF soon lost momentum and was down 14.4% year-to-date by 13 May, despite the March announcement of president Joe Biden’s $2trn COVID-19 infrastructure recovery plan. This included spending on EV battery production, charging, consumer rebates and wind and solar storage facilities. Although initially encouraged by the plan’s ambitions, green investors quickly became discouraged over the chances of it becoming law following Republican concerns about costs.
The main drag on the SPDR S&P Kensho Clean Power ETF, however, came from solar energy stocks, which were battered by supply chain squeezes and price rises of essential raw materials, such as lithium. Threats of higher interest rates also made infrastructure projects look more expensive.
Investing to curb climate change
The SPDR S&P Kensho Clean Power ETF, which launched on 22 October 2018, seeks to invest in companies that provide services and products that drive clean energy innovation, including solar, wind, geothermal and hydroelectric power. The fund has total assets of $367.63m and 43 holdings as of 6 August.
Chinese solar panel manufacturer JinkoSolar [JKS] has the biggest weighting with 3.6%, followed by Enphase Energy [ENPH] with 3.4% and SolarEdge Technologies [SEDG] with 3.29%. Other holdings include Tesla [TSLA] with 3.07% and Atlantica Sustainable Infrastructure [AY] with 2.76%.
Shares in JinkoSolar have dropped 8.4% in the past year (through 6 August), weighed down by supply shortages of solar glass and polysilicon, which is delaying panel installation work.
In its first-quarter report, revenues fell for the second consecutive quarter 6.4% to $1.21bn because of a sharp rise in the price of polysilicon, which had lowered demand. However, it added that after making a strategic investment in Inner Mongolia Xinte Silicon Materials, supplies will be more secure. It said demand would rise and help support 160 GW installations in 2021 and 210 GW in 2022.
As of 6 August, shares in Enphase Energy have climbed 151.8% in the past year. It has also been hit by semiconductor supply squeezes, but recently posted second-quarter results showing a 151.8% year-on-year revenue growth to $316.05m.
These more encouraging results have helped the SPDR S&P Kensho Clean Power ETF recover slightly to hit $98.64 at the close on 6 August.
Enphase Energy's Q2 revenue - a 151.8% YoY rise
Declining solar costs and growing sustainable focus
The SPDR S&P Kensho Clean Power ETF has also been boosted by progress on a slimmed down $1trn US infrastructure bill, which contains crucial green spending pledges.
The commitment to sustainability isn’t just a focus for investors in the US as more and more countries strive to meet the Paris Agreement’s goal of limiting the global temperature rise this century to two degrees.
In April, the UK committed to cut 78% of carbon emissions by 2035, helped by investment in green technology, and Japan is seeking 60% clean energy power by the same data.
Another boon for solar stocks is the Solar Automated Permit Processing platform in the US, which will allow for instant permitting of rooftop solar installations.
“The cost of renewable energy generation has been falling in recent years with continued technological innovation. Increasing global acceptance has also been favouring the space” - Sanghamitra Saha
Solar stocks have “a lot of upside potential,” Matt Maley, equity strategist at Miller Tabak, told CNBC.
Sanghamitra Saha, a senior equity and ETF research analyst at Zacks, is also bullish. “With many analysts believing that the supply crunch in semiconductors will be prolonged, we expect some more margin pressure in the cards for the solar stocks. But... the fundamentals are strong for the space. The cost of renewable energy generation has been falling in recent years with continued technological innovation. Increasing global acceptance has also been favouring the space.”
As such, BNK Invest set its average target price for the SPDR S&P Kensho Clean Power ETF at $127 on the basis that it sees notable upside in holdings, such as PlugPower [PLUG], Daqo New Energy [DQ] and Canadian Solar [CSIQ].