Wind ETF suffers from shale gas competition and lack of subsidies

By: Anton Aleksandrov
Anton Aleksandrov
Anton is a freshly graduated economist from the States with passion for the world of finance. He is one… read more.
on Apr 8, 2014
Updated: Oct 21, 2019 Tuesday, April 8: An exchange traded fund with exposure to wind energy companies has started to feel the drag from the shale gas boom and the end of federal subsidies. The First Trust Global Wind Energy Fund (NYSEArca:FAN) declined by about 0.65 percent over the last five trading days, after closing at $12.20 yesterday. The ETF is still up by about 7.5 percent in the year-to-date but has fallen behind the solar-focused Guggenheim Solar ETF (NYSEArca:TAN), which has surged by 18.31 percent so far in 2014.

The $14 billion (₤8.4 billion) wind industry in the US, the world’s second largest buyer of wind turbines, is seeing increased competition from cheap shale gas. Wind advocates argue that without the reintroduction of government subsidies, worth $23 per megawatt hour to turbine owners, the industry may continue to fall behind. “Cheap gas has definitely made it harder to compete,” said David Crane, chief executive officer of NRG Energy.

North America has fewer wind installations than China but its low price of gas and the widespread support for renewable energy has made it one of the most competitive markets in the world. The most effective wind farms in breezy places such as south Texas can be built for $60 a megawatt-hour, below the $65 price tag for a high-efficiency gas turbine. However, even the best wind farms generate electricity only 45 percent of the time, while ordinary ones work less than 33 percent of the time. Therefore, tax credits are often a decisive factor in determining whether to build a wind farm. “Without the Production Tax Credit, we don’t expect wind to be at cost parity with gas” in most places in the U.S.,” says New Energy Finance analyst Stephen Munro, as quoted by Bloomberg.

**First Trust Global Wind Energy Fund (NYSEArca:FAN)**
FAN is the only wind industry-specific exchange traded fund that is listed on a stock exchange. Its underlying benchmark is the ISE Global Wind Energy Index, which tracks public companies from around the world active in the wind energy industry. The fund has total assets of $99.20 million (₤59.4 million) and last year returned 65 percent to investors. Its top five holdings are Vestas Wind Systems (9.84 percent of assets), Iberdrola (7.79 percent), Nordex (6.71 percent), EDP Renovaveis (6.65 percent) and Gamesa Corporacion Tecnologica (5.96 percent).
**As of 15.05 BST buy First Trust Global Wind Energy Fund (NYSEArca:TAN) at $12.14.**
**As of 15.05 BST sell First Trust Global Wind Energy Fund (NYSEArca:TAN) at $12.12.**
**As of 15.05 BST buy Guggenheim Solar ETF (NYSEArca:TAN) at $42.41.**
**As of 15.05 BST sell Guggenheim Solar ETF (NYSEArca:TAN) at $42.39.**

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