Cheap Natural Gas Prices Wreck Solar and Wind Stocks
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High production in the U.S. has driven down the price of natural gas. The cheap prices have prompted switching in the power industry, as plants swap out coal for the cleaner burning, and cheaper gas. The change was anticipated by industry insiders. What wasn't anticipated was the impact cheap gas would have on renewable energy stocks, which have been decimated.
Recent comments by economist Fatih Birol of the IEA confirm fears many in the renewable energy industry have regarding cheap gas. Cheap natural gas is bad for renewables, she said, and reliance on it "would threaten investment in renewables."
Solar stocks have been punished in the second quarter of 2012, with TAN (NYSE: TAN), an ETF that holds equities in this sector, down 30 percent. Part of the reason for the sell off is attributed to a margin squeeze as companies in China and the US fight for market share, but cheap natural gas prices are only adding to the industry’s woes.
First Trust Global Wind Energy ETF (NYSE: FAN) hasn't performed much better, and is down nearly 25 percent over the same period.
It may be of little consequence to investors caught on the wrong side of this trade, but traditional energy hasn't performed much better. USO (NYSE: USO), an ETT that tracks crude oil is lower by 20 percent since the start of the second quarter, and Energy Select Sector SPDR (NYSE: XLE) is down close to 15 percent. Stocks in the coal sector (NYSE: KOL) have fared even worse, and are down 25 percent.
Meanwhile UNG (NYSE: UNG), the ETF that tracks the futures price of natural gas, has finally stabilized and is trading flat since the start of the second quarter.
Recent comments by economist Fatih Birol of the IEA confirm fears many in the renewable energy industry have regarding cheap gas. Cheap natural gas is bad for renewables, she said, and reliance on it "would threaten investment in renewables."
Solar stocks have been punished in the second quarter of 2012, with TAN (NYSE: TAN), an ETF that holds equities in this sector, down 30 percent. Part of the reason for the sell off is attributed to a margin squeeze as companies in China and the US fight for market share, but cheap natural gas prices are only adding to the industry’s woes.
First Trust Global Wind Energy ETF (NYSE: FAN) hasn't performed much better, and is down nearly 25 percent over the same period.
It may be of little consequence to investors caught on the wrong side of this trade, but traditional energy hasn't performed much better. USO (NYSE: USO), an ETT that tracks crude oil is lower by 20 percent since the start of the second quarter, and Energy Select Sector SPDR (NYSE: XLE) is down close to 15 percent. Stocks in the coal sector (NYSE: KOL) have fared even worse, and are down 25 percent.
Meanwhile UNG (NYSE: UNG), the ETF that tracks the futures price of natural gas, has finally stabilized and is trading flat since the start of the second quarter.
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