Will Clean Energy ETFs Lose Momentum on Russia's REE Move?

Russian president Vladimir Putin's recent directive to create a comprehensive roadmap for rare earth element (REE) extraction by December 2025 (as reported by Russian media outlet TASS, cited in Politico) signals Moscow's intent to muscle in on the critical minerals market. These 17 elements are indispensable components, used in varied industries in the modern-day world, ranging from smartphones and defense systems to wind turbines and Electric Vehicle (EV) batteries.

With Russia housing the world's fifth-largest REE reserves, Putin’s push to dig more REEs is a direct attempt to leverage the country’s natural resources for geopolitical and economic influence. For investors, this raises a critical question: Will this disrupt the already delicate supply-chain balance of the global clean energy industry and negatively impact the performance of popular clean energy ETFs?

Why Clean Energy?

The connection between REEs and the clean energy industry is more direct than in many other industries. REEs are widely used in wind turbines (especially the large, efficient offshore models) and Electric Vehicle (EV) motors, alongside many solar power components.

However, the majority of the REEs used in U.S. renewables are currently sourced and processed from other nations, with the lion’s share coming from China. This acute reliance means Russia’s aggressive entry could momentarily disrupt the supply equilibrium, which has already been vulnerable due to the strained trade relations between America and China in the recent past.

Long-Term Prospects Remain Resilient

Despite the potential for momentary disruption, the long-term outlook for the U.S. clean energy industry remains strong, particularly in light of the 1-year REE supply agreement signed by the United States and China last week, reflecting improved trade truce between the two nations.

Moreover, Russia's current influence remains limited in the global supply of REE, with the country accounting for only about 1% of global rare earth metal production, and it lacks the extensive refining capacity dominated by China. Thus, while earlier Chinese export controls remain a concern, the recent partnership to stabilize trade should help dampen the short-term impact of smaller players like Russia.

Clean Energy ETFs to Watch

Considering the aforementioned discussion, it is quite obvious that Russia’s move to extract more REE does not pose a notable threat for clean energy ETFs, with the global macroeconomic drivers for the renewable industry, like falling installation costs, technological innovations, and soaring investments, remaining overwhelmingly positive.

However, keeping in account these momentary challenges, investors may approach Clean Energy ETFs with cautious optimism. They represent a powerful and diversified bet on the future — one that must, however, be viewed with a wary eye on the geopolitical contest for the critical minerals powering the green transition.

iShares Global Clean Energy ETF (ICLN)

As the largest clean energy ETF, ICLN offers exposure to 101 companies from solar, wind, and other renewable sectors worldwide. It holds net assets worth $2.01 billion. Its top holding is U.S.-based Bloom Energy (BE), the world leader in stationary fuel cell power generation by market share, which has 11.14% weightage in the fund.

ICLN has surged 57.8% year to date. The fund charges 39 basis points (bps) as fees. Its volume is good at an average of 3.74 million shares a day.

First Trust Nasdaq Clean Edge Green Energy ETF (QCLN)

This fund, with net assets worth $558.4 million, offers exposure to 50 U.S.-listed companies involved in renewable electricity generation, energy storage, electric vehicles, and those involved in emerging clean energy technologies. Its top holding is U.S.-based First Solar (FSLR), the world’s largest thin-film PV solar module manufacturer, which has 9.29% weightage in the fund.

QCLN has surged 35.3% year to date. The fund charges 56 bps as fees. Its volume is good at an average of 165,813 shares a day.

Invesco WilderHill Clean Energy ETF (PBW)

This fund, with net asset value of $31.52 per share, offers exposure to a diversified portfolio of 63 renewable energy stocks. Its top holding is Canada-based manufacturer of solar photovoltaic modules and a provider of solar energy and battery energy storage solutions, Canadian Solar (CSIQ), which has 3.19% weightage in the fund.

PBW has soared 58.2% year to date. The fund charges 64 bps as fees. Its volume is heavy at an average of 1.53 million shares a day.

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