U.S. Markets closed

Wind Stocks, ETFs Contend With Cheap Natural Gas


As the end of federal subsidies and now the shale natural gas boom begin to weigh on U.S. wind energy companies, related exchange traded funds are beginning to feel some drag.

While still strengthening, the First Trust Global Wind Energy Fund (FAN) is falling behind Solar stocks and related Guggenheim Solar ETF (TAN) so far this year. FAN is up 8.5%, whereas TAN has gained 24.9% year-to-date.

The wind industry in the U.S., the world’s second-largest buyer of wind turbines, is seeing greater competition from cheap natural gas due to the hydraulic fracturing, shale oil boom and is slowing after federal subsidies for wind technology ended last year, reports Christopher Martin for Bloomberg.

“Without the Production Tax Credit, we don’t expect wind to be at cost parity with gas” in most places in the U.S., Stephen Munro, an analyst at New Energy Finance, said in the article.

Wind-power advocates argue that the gas industry, aided by master limited partnerships that allow pipelines to avoid paying income tax, has an unfair advantage. [Shale Oil Boom Will Bolster MLP, Energy Infrastructure ETFs]

“If gas prices weren’t so cheap, then wind might be able to compete on its own,” South Dakota’s Republican Governor Dennis Daugaard, said in the article.

Additionally, after Congress allowed the wind Production Tax Credit to expire last year, wind farm construction plummeted 92%.

“Cheap gas has definitely made it harder to compete,” David Crane, chief executive officer of NRG Energy Inc., said in the article, arguing that with the subsidy, companies were able to propose wind projects “below the price of gas.”

FAN is the only wind industry-specific ETF listed, but there are a couple broad alternative energy ETFs that focus on clean energy companies. For instance, the PowerShares WilderHill Clean Energy Portfolio (PBW) and First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) focus on U.S. clean energy companies, while the Market Vectors Global Alternative Energy ETF (GEX) and PowerShares Global Clean Energy Portfolio (PBD) cover global companies. [Improving Technology, Falling Costs Lift Clean Energy ETFs]

First Trust Global Wind Energy Fund

For more information on the wind industry, visit our wind category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.