In the lead-up to the passage of the Inflation Reduction Act, renewable energy ETFs got a noticeable price boost. However, only one fund covering the space has seen significant inflows so far this month.
The Invesco Solar ETF (TAN) is the largest solar energy ETF and the second-largest renewable energy ETF, with $3.2 billion in assets under management. From the start of August up to President Joe Biden’s signing of the massive spending bill, the fund pulled in more than $366 million. This significantly outpaced any of the large broad renewable energy funds, which ranged from outflows of $40 million to gains of just under $70 million.
A brief released this week by Washington D.C. law firm Wiley Rein notes that climate analysts see the Inflation Reduction Act, which seeks to raise $739 billion in new taxes, as a game-changer for solar manufacturing and the growth of solar power.
It highlights that the bill will invest a total of $370 billion in programs focused on energy security and climate change in order to achieve the goal of slashing carbon emissions by 40% by the end of the decade. The document also notes that the bill provides for the extension and expansion of tax credits related to the manufacture of solar power components and the generation of solar energy.
“We think this is a game-changing opportunity for the domestic solar manufacturing industry in particular, and for all of renewable energy,” said Tim Brightbill, a partner at Wiley Rein and trade counsel to the American Alliance for Solar Manufacturing, in an interview with ETF.com, noting the 30% tax credit for solar installation and the solar production tax credit, among other provisions.
“This is important because it will incentivize rapid expansion of American-manufactured solar panels, as well as solar wafers and cells,” he noted. “This makes the Inflation Reduction Act absolutely critical to rebuilding the entire solar supply chain.”
Brightbill notes that the act has the potential to quadruple the production capabilities of solar manufacturing in the U.S. and said the current administration has estimated that 300 million additional solar panels could be produced between now and 2030 because of the legislation.
Spotlight on TAN
TAN has taken in new money ahead of the Biden spending bill, while broader renewable energy funds haven’t gotten the same notice. Investors appear to be favoring solar over other forms of renewable energy.
Solar has emerged as one of the most dominant forms of alternative energy. TAN shares 31 of its 45 holdings with the largest broad renewable energy ETF, the nearly $6 billion iShares Global Clean Energy ETF (ICLN), which has a portfolio of roughly 100 securities, with solar energy stocks representing roughly one-third of the holdings in the largest renewable energy ETF currently trading.
TAN is up nearly 14% year to date as of Aug. 16, while ICLN is up 10.5% and the iShares MSCI ACWI ETF (ACWI) is down 11.5% during the same time period. In the last three months alone, the solar energy fund is up more than 44%, while ICLN is up about 34% and the broad global equity fund is up by less than half of that.
Of course, conventional energy has been on a tear, with the Energy Select Sector SPDR ETF (XLE) rising 41% year to date, blowing the performance of renewable energy stocks out of the water.
Traditional wisdom says that when old-school energy stocks are rising, renewable energy stocks will decline, and vice versa. That seems to be holding true. In the three-month period that saw TAN’s share price spike by more than 40%, XLE was down by 6%.
TAN launched in April 2008 and has an expense ratio of 0.69%.
Contact Heather Bell at [email protected]