Generally speaking, businesses love lower costs. Lower commodities, labor and transportation costs are among the input factors companies like to see on the low side, when possible. Declining costs are seen as major catalysts for scores of industries, including clean and renewable energy.
When alternative energy sources, such as solar and wind, initially became part of the global energy lexicon, pervasive was the belief that high costs relative to fossil fuels would stymie adoption of clean energy. Fast-forward to 2018 and the opposite is proving true.
“The cost of building a new utility-scale solar or wind farm has now dropped below the cost of operating an existing coal plant, according to an analysis by the investment bank Lazard,” reports CBS News. “Accounting for government tax credits and other energy incentives would bring the cost even lower.”1
Solar, arguably the most recognizable form of clean energy, is experiencing jaw-dropping price declines. Seven years ago, the average silicon solar module spot price per watt was roughly 90 cents per watt. Today, that price is closer to 20 cents per watt.
Source: AVORY & CO. as of 11/18
The Impact Of Falling Clean Energy Costs
On multiple fronts, the effects of declining renewable energy costs are palpable. Just look at the domestic coal industry. This year, coal-fired power plant closures will likely set a record, according to the Institute for Energy Economics and Financial Analysis (IEEFA).2
“The competitive environment for coal-fired power in the generation marketplace is becoming ever more challenging as the price of renewables continues to fall and as natural gas prices are expected to remain low for the foreseeable future,” said Seth Feaster, an IEEFA data analyst.
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Highlighting the notion that America’s energy future includes increased adoption of renewables is the data point that the current level of coal power, which is 264 gigawatts (GW), will be trimmed by 15 percent by 2024.
Lazard employs metric known as levelized cost of energy, or LCOE, which includes costs such as debt, equipment and others to arrive at the smallest dollar amount per unit of energy.
“The LCOE for coal this year is between $27 and $45 per megawatt. That figure is $29 to $56 for a wind farm and $31 to $44 for a solar farm, depending on the technology used,” according to CBS.
In most markets around the world, wind is the least expensive alternative energy source to implement, but solar is usually the most adopted. Those two sources are expected to combine for 143GW of new clean energy capacity.3
Adopting Clean Energy Investments
The ALPS Clean Energy ETF (ACES) offers exposure to seven thematic areas of the renewable energy investment landscape, including solar and wind. At the end of the third quarter, the index ACES targets allocated 45.85 percent of its combined weight to solar and wind companies. Efficiency, LED and smart grid companies represent nearly 23 percent of the benchmark’s weight.
New research says the global smart grid market is expected to undergo 11 percent compound annual growth from 2018 through 2024.4
1 Source: CBS News Nov. 16, 2018 https://www.cbsnews.com/news/its-now-cheaper-to-build-a-new-wind-farm-than-to-keep-a-coal-plant-running/
2 Source: IEEFA October 25, 2018 http://ieefa.org/ieefa-report-u-s-likely-to-end-2018-with-record-decline-in-coal-fired-capacity/
3 Source: Forbes Oct. 5, 2018 https://www.forbes.com/sites/mikescott/2018/10/05/clean-energy-market-continues-strong-growth-as-costs-continue-to-fall/#19efd0413fc7
4 Source: Market Study Report LLC Dec. 14, 2018
Important Disclosures & Definitions
Investors should consider investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information. For a prospectus for the above listed fund, please click here. Please read the prospectus carefully before investing. For additional information on the above listed fund, please click the respective link.
Standardized performance for the ALPS Clean Energy ETF (ACES) can be found here. Current holdings for ACES can be found here.
Shares are not individually redeemable and the owners of shares may purchase or redeem shares from a fund in creation units (blocks of 50,000 shares) only.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.
The content and opinions expressed in this article are that of the author and not the views and opinions of ALPS Advisors, Inc. In addition, ALPS Advisors, Inc. assumes no responsibility to ensure the accuracy of the content written by the author.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus.
NACEX Index – The CIBC Atlas Clean Energy Index is an adjusted market cap weighted index designed to provide exposure to a diverse set of U.S. or Canadian based companies involved in the clean energy sector including renewables and clean technology.
One cannot invest directly in an index.
The fund is new and has limited operating history.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Clean Energy ETF.
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