The Election: Another Challenge for US Clean Energy

Clean energy exchange-traded funds are down (some by double digits) since the election of Donald Trump and the Republican sweep of Congress, as the industry faces a likely reversal of supportive government policies.

The largest clean energy ETF, the $1.7 billion iShares Global Clean Energy ETF ICLN, has lost 11% since Election Day, while the second largest, the $900 million Invesco Solar ETF TAN, is down 15.2%. At the same time, investors have been pulling money from these funds, extending a trend of outflows.

Even before the election, both ETFs had been experiencing a rough few years after being swelled by a large influx of new investor dollars and a major run-up in alternative energy stocks throughout 2020. The two funds peaked in terms of assets under management in 2021, and since then, they’ve lost assets due to falling stock prices and outflows.

Clean Energy ETFs Have Struggled

Both the iShares Clean Energy ETF and the Invesco Solar ETF saw major gains in 2020, with the iShares fund returning 142% for the year and the Invesco fund rising 234%. This was partly due to the election that year of President Joe Biden, who advocated for policies favorable to solar and wind power. The funds experienced some of their largest inflows around that time.

In January 2021, for example, the iShares ETF pulled in $1.7 billion, as much as its current total assets. The Invesco fund similarly pulled in flows equal to its entire current size of $900 million. The iShares fund peaked in value in October 2021 at $6.9 billion, four times its current level of assets, while the Invesco Solar ETF peaked in January 2021 at $4.7 billion, more than five times its current level.

Election Adds to Woes for Clean Energy ETFs

Heading into November 2024, multiple factors have led to the decline in clean energy stocks. One major element is overproduction, especially in the solar panel industry. In addition, high interest rates made installing new clean energy capacity more expensive, because it often has substantial upfront costs that require borrowing.

Clean energy stocks have taken a fresh hit in the wake of the election, amid expectations that the new Trump administration may try to repeal incentives the Biden administration put in place for clean energy production, especially under the Inflation Reduction Act. Signed into law in August 2022, the IRA provided billions of dollars of support for clean energy projects.

Solar and wind power are now widely believed to be in Trump’s crosshairs. As a result, in a mirror of the gains seen after Biden’s election in 2020, the iShares and Invesco funds have seen investors head out the door since Election Day. Investors have pulled $43 million from the Invesco fund, while the iShares fund has seen investors withdraw a net of $67 million.

“Wind and solar have enjoyed a bevy of government incentives following the passage of the Inflation Reduction Act,” writes Morningstar stock analyst Brett Castelli. “A Republican sweep in Washington leaves those subsidies in potential jeopardy since Trump has said he would look to repeal the act.” Still, “structural drivers, such as technological advancements, cost declines, and state renewable energy policies, ensure the energy transition will continue regardless of which party is in the White House.”

Here’s a look at the performance of the five largest clean energy ETFs:

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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