5 Alternative Energy ETFs Facing an Uphill Battle

Includes: FAN, GEX, KWT, PBW, TAN
by: Kevin_Grewal

Most recently, President Barack Obama addressed rising gasoline and energy prices by stating that it is imperative that the U.S. 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 their coal-powered counterparties. In particular, 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 electricity 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 U.S. market is likely to keep natural gas prices relatively tame and therefore make 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 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 (NASDAQ:FSLR), include:

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

Disclosure: No Positions