Clean Energy Stocks Have Plunged Into the Red. Even Bottom-Fishers Should Stay Away.

Clean energy stocks, and the ETFs that track them, are proving that it ain’t easy being green.

The issue with ETFs, for better or worse, is that most track an index. There’s no active manager calling the shots.That leaves investors with little choice other than “take it or leave it” when it comes to a fund’s holdings. 

Lately, investors have been opting to “leave it.” This is just as true with clean energy funds as it is for any other industry. 

As this chart shows, the ALPS Clean Energy ETF (ACES) is off more than 30% from its 2-year high set early in June. 

This daily chart tells me that this has been a very slow bleed, which means it will be tougher for ACES to turn around. The percentage price oscillator (PPO) indicator at the bottom of the chart is a double-edged sword. It is deeply sold off, but shows no signs of abating. If it doesn’t hold support in this $30 area, it could be headed much lower still. 

The weekly chart is below, and frankly, it looks worse to me. Translation: a bounce is always possible, but those cannot yet be trusted.

ACES is just a $110 million ETF at this point, but I don’t care much about how popular a fund is. If anything, that’s a contrarian signal to me. 

Instead, I’m looking for an ETF that allows me to save time and effort by “buying the basket” in one trade. ACES does that. It is just not a trade I like right now.

The holdings are limited enough, at under 40 names. And since 10 of them account for more than 50% of the fund, I have a good idea of what I’m getting. There might be a time when stock picking within this ETF’s top 10-20 holdings will make sense. But that’s not the case currently. It is a big green washout, and probably not over. 

Why Are Green Energy Stocks Down? 

Few thematic plays have experienced as severe a reversal of fortune as clean energy. For investors who bought into the narrative of an unstoppable, global green transition, it has been a painful lesson in how macro policy, rising capital costs, and supply chain realities can completely dismantle a high-octane growth thesis.

After reaching historic highs during the post-2020 ESG boom, ACES has had little go right, especially when it comes to U.S. policy. I don’t mean just politics, but also the mistaken assumption by many that low interest rates would exist forever. That ended in early 2022, and you can see that it synched up with the peak in this ETF’s price. 

Developing utility-scale solar installations, offshore wind farms, and hydrogen infrastructure requires massive upfront capital expenditure before a single dollar of revenue is generated. Companies inside ACES heavily relied on cheap debt and continuous equity dilution to finance these multi-year projects.

When global central banks raised interest rates and pushed long-term yields higher, the cost of capital exploded. Projects that were profitable when debt costs were 2% suddenly became unviable when long-term borrowing costs jumped to 5% or 6%.

Developers have been forced to write down billions in canceled offshore wind developments, renegotiate power purchase agreements, or absorb massive margin compression, directly impacting the underlying holdings of ACES.

Beyond high interest rates, the clean energy supply chain remains off-kilter. Solar panel manufacturers and battery supply chains face intense international competition and persistent overcapacity. A global price war has crushed profit margins for solar component manufacturers, even as deployment rates remain high. These operational struggles mean that higher end-user demand for renewable energy has not translated into strong bottom-line corporate earnings growth for the companies within the fund.

And, as mentioned, the regulatory tailwinds that previously propelled clean energy are facing an increasingly hostile political environment. With international trade policies shifting toward tariffs, domestic content mandates, and the protection of legacy energy networks, clean energy firms face mounting regulatory friction. Subsidies and tax credits that previously acted as a crutch for unprofitable business models are under constant legislative review. 

The story of ACES is a classic example of confusing a popular societal trend with a profitable investment vehicle. 

Sure, renewable power generation will continue to grow as a component of global electricity grids, but the equities tasked with building that infrastructure carry balance-sheet vulnerabilities, high debt levels, and terrible price momentum. And ACES will rise again, and likely be a big winner for bottom fishers. But for pond-dwellers like Kermit the Frog, right now it is just not easy being green.

Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.