Five Alternative Energy ETFs Facing An Uphill Battle

Most recently, President Barack Obama addressed rising gasoline and energy prices by stating that it is imperative that the US utilize sources other than fossil fuels to feed the nation’s energy appetite and lessen foreign dependency on crude oil.  

As retail gasoline prices sit near $4 per gallon in certain parts of the nation and the price of crude oil hovers around the $100 per barrel mark, the appeal for alternative energy such as solar, wind and ethanol become that much more attractive.  However, at the end of the day, renewable energy continues to remain significantly more expensive and less efficient than its fossil fuels competitors. 

Both wind and solar power require major government subsidies and mandates just to make them somewhat economically feasible, but are still not highly profitable.  Additionally, infrastructure behind alternative energy sources for power generation is extremely expensive and not as dependable as there coal powered counterparties.  In particularly, the building of transmission grids to move the electricity generated by solar panels and wind turbines is costly.

To make things even more challenging for wind and solar energy, on the power generation side, power is only generated, and hence electricity is flowing, when it is sunny or windy.  Furthermore, storing excess electricity generated via solar panels or wind turbines will be very difficult. 

 Lastly, the massive supply of natural gas reserves in the US market is likely to keep natural gas prices relatively tame and therefore making it even harder for alternative energy sources to gain market share. 

In a nutshell, as long as alternative energy sources remain more costly than traditional fossil fuel energy sources and the natural gas production continues to increase, which it likely will due to massive shale finds, alternative energy sources are expected to face an uphill battle.

Some ETFs that are likely to face this uphill battle which have ample exposure to companies involved in the generation of power via solar and/or wind such as First Solar (FSLR) include:

  • Guggenheim Solar ETF (TAN)
  • Market Vectors Solar Energy ETF (KWT)
  • PowerShares WilderHill Clean Energy Portfolio (PBW)
  • Market Vectors Global Alternative Energy ETF (GEX)
  • First Trust ISE Global Wind Energy ETF (FAN)

Disclosure: No Positions

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About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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