Climate change and the world’s continued reliance on fossil fuels are bringing clean power to the forefront at the same time that advances in the New Economy are spurring the rise of innovative technologies that generate power from wind, solar, hydroelectric and geothermal sources.
These clean power advances cannot come soon enough. As the world’s population continues to grow and urbanize, the US Energy Information Administration forecasts that global energy demand will rise 28% by 2040, with countries outside of the Organization for Economic Cooperation and Development (OECD) driving 60% of this demand growth.1
At the same time, companies and governments are facing increased pressures to reduce their reliance on emissions-intensive fossil fuels and their associated impacts on the climate, weather systems and biological health. As a result, the EIA expects renewable energy to be the fastest growing energy source between now and 2040, recording a growth rate of 2.3% per year.2
To meet this demand, investments in renewable energy and clean power generation are rising at a breakneck pace, with Bloomberg New Energy Finance projecting $7.7 trillion of power investments by 2030. Sixty-five percent of these investments are forecast to be directed toward the renewable sector, which, as shown below, is still in the early stages of innovation. Renewable energy is predicted to see widespread adoption in the coming decades, overtaking fossil fuels as the dominant share of energy consumption by 2060.
Source: Shell Sky Scenario, SSGA.
Clean power prices rivaling traditional fossil fuels
While atmospheric carbon dioxide has naturally waxed and waned throughout earth’s history, it has been rising exponentially since the start of the Industrial Revolution. It now sits at levels not seen for 4 million years due to the nearly exclusive use of emission intense fossil fuels.3 In addition to the harmful pollutants emitted by fossil fuels, their finite nature, which makes them increasingly scarce as well as expensive and difficult to extract, has helped drive efforts to develop more resilient, abundant energy inputs.
As a result, dollars are flowing into the renewable energy space. In 2017, $330.5 billion was invested in clean energy, just shy of the record investment seen in 2015.4 In turn, costs are falling. For instance, utility-scale solar costs dropped by 25% over just two years, making solar energy increasingly competitive with traditional inputs like coal. These trends are spurring market growth. The global renewable market was valued at $1,405,646 million in 2016, and it is expected to grow at a compound annual growth rate (CAGR) of 4.9% through 2025 to $2,152,903 million.5
Source: Bloomberg Finance L.P., as of 11/05/2018.
Accessing clean power’s growth potential
We have partnered with Kensho Technologies to provide investors with a means of harnessing growth opportunities arising from the New Economy and the world’s transition to a clean energy future. Kensho is an innovative data analytics company that is using natural language processing (NLP) to develop indices designed to capture the full eco-system of US-listed firms driving the New Economy. The S&P Kensho Clean Power Index identifies companies within the Clean Power and Clean Tech sub-indices that have the potential to become leaders in wind, solar, geothermal and hydroelectric power generation. While the index includes large, headline-grabbing companies, such as Tesla and AES Corp., it also includes:
- Sunrun Inc. (RUN), a California-based residential solar panel and battery storage provider. Sunrun is uniquely positioned to benefit from recent legislation mandating solar panel installment on most newly constructed homes in the state.
- Ormat Technologies (ORA) is one of the few US-listed companies focused primarily on geothermal power. With more than 150 geothermal power plants in 25 countries generating more than 2,100 megawatts of capacity,6 ORA is the sixth-largest owner and operator of geothermal assets globally.
Below are the Top 10 holdings of the S&P Kensho Clean Power Index:
The SPDR® S&P Kensho Clean Power ETF (CNRG) is designed to track S&P Kensho’s Clean Power Index. CNRG provides investors with exposure to new entrants as well as entrenched energy players who are well aware of the potential business risk of failing to adapt to a renewable future. By investing in a portfolio of companies involved in the global transition to a lower-emission generating power supply, CNRG may offer an effective means of pursuing the long-term growth potential of clean power.
To learn more about using our suite of SPDR S&P Kensho ETFs to position portfolios for the New Economy, you can read my earlier blog. You can also follow SPDR Blog to stay on top of evolving New Economy trends.
1“EIA projects 28% increase in world energy use by 2040,” eia.gov, as of 9/14/2017.
2“EIA projects 28% increase in world energy use by 2040,” eia.gov, as of 9/14/2017.
3"The South Pole’s CO2 Levels at Highest Levels in 4 Million Years," unfccc.int, as of 10/27/2017.
4Bloomberg New Energy Finance, 2018.
5"Renewable Energy Market by Type-Global Opportunity Analysis and Industry Forecast, 2014-2025," Allied Market Research, November 2017.
6JP Morgan Research, “Ormat Technologies,” as of 8/9/2018.
Prior to 06/25/2019, the SPDR S&P Kensho Clean Power ETF (CNRG) was known as the SPDR Kensho Clean Power ETF (XKCP).