Q1 2023 Review

Quarterly overview of stock index performance and the top trends impacting the state of clean tech.

The first quarter of 2023 saw Nasdaq Clean Edge’s four core indexes rebound from their double-digit declines in 2022. While high interest rates and inflationary pressures continued to dog global markets, tech- and infrastructure-oriented clean-energy stocks were back in favor during Q1, while oil and gas were set back after their meteoric rise over the past two years and broader volatility in the fossil fuel sector.

QGRD (global smart grid & grid infrastructure) and CELS (U.S. clean energy) both beat out the S&P 500 during Q1, up 12.23% and 10.71% respectively compared to the S&P 500’s increase of 7.5%. HHO (U.S. water) increased 5.63% and GWE (global wind) increased 3.65% during the quarter. During the same period, the IXE (energy select) was down 4.37%.

Q1 2023 Index Performance (Total Return)

Over a 12-month period (through the end of March 31, 2023), on a total return basis, CELS was down 18.69% and GWE declined 7.73%, while QGRD and HHO were up 5.43% and 0.54% respectively. During the same timeframe, the S&P declined 7.73% and the IXE rose 13.15%.

TTM Index Performance (Total Return)

First Trust ETFs and UCITS tracking Nasdaq Clean Edge indexes equaled approximately $4 billion in assets under management as of March 31, 2023.

DATA DIVE: SOLAR & WIND DOMINATE

In 2022, solar and wind represented three-quarters of all additions in the U.S., both outpacing natural gas for the third year in a row. This is a dramatic reversal from 2010, when renewables (mainly wind) represented just 30% of capacity additions, while fossil fuels (natural gas and coal) contributed 70%. This expansion in renewables capacity additions, along with retirements of older fossil fuel plants, is having a significant impact on the generation mix on the nation’s grid. The EIA reported that 21.5% of the nation’s electricity generation came from renewable sources in 2022, more than double their 10.4% share in 2010. There has been a recent uptick in natural gas capacity additions as well, with an additional 7.5 GW of natural gas planned for 2023, 1 GW more than was added in 2022. Battery energy storage deployed alongside renewables, however, will reduce the need for new natural gas plants in the long term. The EIA projects that U.S. battery storage capacity will more than double in 2023, much of this alongside a record-shattering 29.1 GW of planned new solar capacity – more than the total new capacity from all sources in 2022.

Below are the annual capacity additions from all sources combined.

WINNERS AND LOSERS (INDEX CONSTITUENTS RANKED BY PRICE RETURN)

Below is a list of the top 10 best and worst constituent performers across the following Nasdaq Clean Edge indexes (CELS, QGRD, HHO, and GWE) during Q1 2023.

Best and Worst Constituents (Q1 2023)

QUARTERLY INSIGHT: 10 HIGHLIGHTS FROM MY RECENT EUROPEAN SPEAKING TOUR  

After being confined to home at the onset of the Covid-19 pandemic, and then limiting my business meetings and speaking engagements primarily to webinars and Zoom calls, it was an absolute joy to get back on the road during the start of 2023. In February, I traveled for nine days in Europe to meet with representatives from partner First Trust and their clients across the EU, holding talks in Amsterdam, Geneva, Zurich, London, Brussels, and Paris. Below are 10 key lessons/points from my talks (not in any specific order):

1. Onshore wind and solar are not only the cheapest forms of new power capacity additions globally, but the fastest to deploy. (New nuclear is currently both the most expensive and slowest to deploy.)
2. Power markets are reaching a tipping point, with most new additions globally coming from solar and wind. By 2025, more than a third of all global electricity production will come from renewables, according to the IEA, surpassing all generation from coal. Globally, solar and wind already outpace generation from nuclear power.
3. Solar is king in the U.S. In 2023, an estimated 29 GW of new utility-scale solar PV is projected to come online in the U.S., which would be more than all capacity additions (from solar, wind, and natural gas) in 2022.
4. Fueled by Russia’s attack on Ukraine and governments and consumers looking to wean themselves off Russian natural gas, sales of heat pumps skyrocketed in Europe, with nearly 3 million units sold in 2022, up around 40% from 2021 sales. But it wasn’t just heat pumps that benefited from Europe’s “just say no” to Russian gas shipments. In 2022, the amount of LNG (liquefied natural gas) that the U.S. sent to Europe equaled 56 billion cubic meters — double the exports from the previous year.
5. While anti-ESG attacks have cooled the market for ESG funds in the U.S., Europeans continue to support the ESG framework, pushing the envelope on Article 8 and 9 compliance. While Clean Edge’s research is not ESG-centric (we are focused on clean-tech innovation and deployment rather than ESG compliance), we hope the rhetoric on the U.S. side of the pond settles down and that meaningful and impactful frameworks are deployed in Europe as a model for other nations.
6. Blowing past a range of headwinds, energy transition investments globally hit $1.1 trillion in 2022, breaking the $1 trillion mark for the first time, according to Bloomberg NEF.
7. The energy transition will require not only the scale up of renewables, but the mass deployment of energy storage, the electrification of formerly fossil-fuel intensive industries such as transport, and perhaps most important, the deployment of resilient, bi-directional and modernized grids – including the massive scale up of new transmission lines and interconnections for clean power.
8. While China and the U.S. lead the world in overall EV sales, Europe, and particularly Scandinavia, leads by a wide margin in EV sales as a percentage of total vehicles sold. In 2021, sales of EVs represented 86% of total passenger vehicle sales in Norway, 72% in Iceland, 43% in Sweden, and in the 30% range in Denmark, Finland, and the Netherlands.
9. China’s five-year plans, with its concerted industrial policy directives, have put it an enviable industrial leadership position. China currently dominates in clean-tech manufacturing, leading the world in the production of five key industries: solar panels, wind turbines, EV batteries, electrolyzers, and heat pumps.
10. The U.S. recently passed the Inflation Reduction Act (along with the CHIPS and Science Act and the Infrastructure Bill), to compete more effectively in clean-tech manufacturing and deployment. Offering the promise of building a robust, reliable, and competitive domestic ecosystem for clean-tech industries, these policies are focused on carrots (namely manufacturing and production tax credits plus consumer tax credits and rebates) rather than sticks. The IRA is already paying dividends, with tens of billions in corporate commitments announced to build U.S.-based mining, EV, energy storage, and solar production and manufacturing facilities. Other nations across Europe and Asia are looking to develop their own similar green industrial policies. Game on!

Disclaimer:

The information contained above is provided for informational and educational purposes only. Clean Edge is not an investment adviser, and none of the information, including any Nasdaq Clean Edge index, should be construed as investment advice or relied on as the basis for making any kind of investment decision. Neither Clean Edge nor any of its affiliates makes any recommendation whatsoever to buy or sell any securities, fund, or financial product or any representation about the financial condition of any company, fund, or financial product. Information regarding any Clean Edge index is not a guarantee of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results and should never be relied upon for making any kind of investment decisions. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.