To say that 2020 was a record-breaking year for renewable energy investment would be an extreme understatement. Clean energy went gangbusters last year as the spread of the novel coronavirus took a major bite out of oil demand, caused a record oil price crash, and ultimately catalyzed the global clean energy transition. In fact, the global renewable energy industry grew faster last year than it has since 1999 thanks to a huge spike in demand from both the public and the private sectors. Renewable energy installation, including wind farms and solar power projects, increased by a whopping 45 percent compared to the year before. Wind power capacity alone grew twofold in 2020, while solar energy’s growth rate increased by nearly 50% more than pre-pandemic levels.
Now, however, the pendulum seems to be swinging the other way as the massive upswing in renewable energy adoption slows back down. Two prominent exchange-traded funds which feature clean energies as the focus of their portfolios, Invesco Solar ETF (TAN) and the Invesco WilderHill Clean Energy ETF (PBW), are down 30% and 26% respectively so far over the course of this year. (Last year TAN increased by almost 234% and PBW rose more than 202%). But long-term investors see this as a normal correction that will not take the wind out of renewable energy’s sails.
Invesco’s head of ETFs and indexed strategies for the Americas John Hoffman told CNBC that this bump in the road is only natural and shouldn’t scare off investors. “When you think about the transformation to clean energy, we think about it over decades, not days,” Hoffman was quoted by CNBC’s “ETF Edge”. “The trend to cleaner energy, solar power, water resources, greener buildings, these are long-term themes here … that we’re seeing play out.”
Because the market for renewable energy is global, there is enormous potential for growth, says Hoffman. “With almost 100 ETFs tied to environmental, social, and governance themes now available to U.S. investors, momentum is picking up in this space,” CNBC underlines. What’s more, renewable energy and other clean technologies (such as electric vehicles, the sector that notably jettisoned Elon Musk to the very top of the Forbes rich list, albeit briefly and intermittently) is one of the most promising sectors for post-pandemic recovery and jobs growth according to a whole swath of studies.
Indeed, according to the International Energy Agency (IEA), the breakneck pace of growth set last year was not an anomaly, but likely has established a standard growth rate going forward. The IEA has pushed the IEA to revise its previous renewable energy forecasts, increasing its projections by approximately 25% on the heels of 2020’s renewable revolution, which saw key players including the United States and China increase their renewable energy adoption much faster than expected.
The IEA cheered on this unexpected development, with executive director Fatih Birol stating that around the world, governments must “build on this promising momentum” with policy-making designed to “encourage greater investment in solar and wind, in the additional grid infrastructure they will require, and in other key renewable technologies such as hydropower, bioenergy and geothermal.” Birol further underlined the importance of the continuation of this trend, going on to say that “a massive expansion of clean electricity is essential to giving the world a chance of achieving its net zero goals.”
The world’s two largest economies are now rushing headlong into the clean energy transition. As China continues to pledge huge reductions in carbon emissions and make good on promises to launch the world’s largest carbon trading scheme, and the United States rejoins the Paris climate accord and gets serious about tackling climate change under the new presidential administration, the prognosis is bright for the renewables market.
By Haley Zaremba for Oilprice.com
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