FAN reverses losses on global shift to green energy

The move towards sustainable green energy and away from fossil fuels has been thrust into the political limelight with the Russia Ukraine war and the drive to hit net-zero carbon-emissions targets by 2030. A wind of change that has boosted the share price of the First Trust Global Energy ETF.

The First Trust Global Wind Energy ETF [FAN] is back on course as the Russian-Ukraine war accelerated ambitions to ramp up the switch from fossil fuels to renewable energy.

The FAN share price has climbed 12.5% since the invasion began on 24 February as oil prices soared and many nations, including UK and EU nations, pledged to reduce their dependence on Russian oil and gas, and increase energy security.

It was a welcome boost for the sector after the hit from higher interest rates, supply chain squeezes and inflation, which threatened to increase the cost of offshore and onshore wind developments and lower returns. The FAN share price had plunged 13% between the start of the year and the beginning of the conflict.

The FAN tracks the ISE Clean Edge Global Wind Energy Index, which measures the performance of global public companies that are active in the wind energy industry.

Companies on the index need to be actively engaged in some aspect of the wind energy industry, such as the development of a windfarm, the production or distribution of electricity generated by wind power, or involvement in the design, manufacture or distribution of machinery or materials designed specifically for the industry.

Essence of FAN

Launched in 2008 the FAN has assets of $328.6m, but a year-to-date total daily return of minus 2.48%. That is likely to improve, not just as a result of the Russian/Ukraine conflict but also from the UN-backed drive to hit net-zero carbon emissions targets by 2030.

The Global Wind Energy Council recently stated: “After a year in which net-zero commitments gathered global momentum, coupled with renewed urgency for achieving energy security, the market outlook for the global wind industry looks even more positive,” reported ETF Trends.

It expects 557 gigawatts of new capacity to be added globally in the next five years under current policies. That is more than 110GW of new installations each year until 2026.

The current rate of growth “needs to quadruple by the end of the decade if the world is to stay on course for a 1.5C pathway and net-zero by 2050,” said the Council. If acted upon this could become a catalyst for FAN and its constituents.

Yet, the complexity of construction, planning permits, storage and grid connection mean wind developments, particularly offshore, are daunting in their scale, potentially deterring fast growth.

Global push

The momentum throughout the globe is apparent. The US plans to generate nearly 35GW of offshore wind power in eight east and west coast states by 2030. It has already planned license auctions. According to Reuters Eventsthere is an “unprecedented” 1,000GW of US offshore wind resource that remains untapped.

Other countries are also accelerating. Half of all offshore wind turbines installed worldwide in 2021 were in China. The UK has just listed ambitions to install up to 50GW of offshore wind by 2030, from a current target of 40GW.

The FAN has 53 holdings of which Danish windfarm developer Ørsted [ORSTED.CO] has the biggest weighting with 7.71%, followed by wind power plant developer China Longyuan Power Group Corporation [0916.HK] (pictured above) with 7.45%, green power producer Northland Power [NPI.TO] on 7.34% and wind turbine manufacturer Vestas Wind Systems [VWS] with 7.15%.

The Ørsted share price has risen 29% since the Ukraine invasion, also boosted by onshore and offshore wind developments in the US and the UK with the Hornsea 2 Two offshore windfarm.

The Vestas share price is 32% higher since 24 February, with China Longyuan up 22%. This is a truly global push for wind energy growth.

There are more discussions to be had about extending fossil fuel life and revamping nuclear power. But with wind, expect the momentum behind these stocks and the FAN to keep gusting.