Clean energy ETFs surge 28% as AI demand reshapes power markets

Clean energy ETFs are not rallying on subsidy headlines this time — they are being pulled higher by something harder to reverse: data centers that need power the grid cannot supply without renewables.

The Invesco Solar ETF (NYSEARCA:TAN) has gained roughly 28% year to date, the Invesco WilderHill Clean Energy ETF (NYSEARCA:PBW) is up about 31%, and the iShares Global Clean Energy ETF (NASDAQ:ICLN) has risen around 27%. Over the trailing 12 months, PBW has roughly two-and-a-half-bagged and TAN has more than doubled. The moves come after ICLN lost about 45% across 2022, 2023, and 2024 — a drawdown that left the category priced for abandonment by both policymakers and capital.

"The structural case for solar today is cost, not policy," said Lucas Herrera, an energy transition analyst. "When a fixed-axis solar farm delivers power at $39 per megawatt-hour, utilities sign power purchase agreements because the math works — not because of a tax credit."

That $39 per MWh figure, pegged by BloombergNEF for 2025, makes solar the cheapest new bulk power source in most global markets. The economics are being reinforced by demand that shows no sign of slowing. The International Energy Agency expects global data center electricity consumption to roughly double to about 945 TWh by 2030, with AI workloads as the primary driver. Utilities cannot permit and build enough gas turbines or new nuclear capacity fast enough to fill that gap, so solar and storage are being contracted as the marginal supply.

The domestic manufacturing buildout adds a third structural pillar. First Solar alone expects to operate more than 14 gigawatts of annual US capacity in 2026 across sites in Alabama, Louisiana, and Ohio. Tariff walls around Chinese modules have remained in place, and the resulting US production base now functions as a genuine competitive moat for domestic manufacturers.

The macro backdrop has also turned more accommodating. The Federal Reserve has cut 75 basis points since May 2025 and held the funds rate at 3.75% since December. While those cuts fall short of the zero-rate environment that fueled the 2020 clean energy rally, a stable easing cycle changes the discount rate math on long-duration renewable cash flows in a way that the 2022-to-2024 tightening cycle never did.

TAN: Concentrated exposure to the solar thesis

TAN tracks the MAC Global Solar Energy Index across about 32 names, concentrated in module makers like First Solar, inverter manufacturers Enphase Energy and SolarEdge Technologies, and downstream developers. The fund runs a 0.7% expense ratio on roughly $1.9 billion in assets, giving it the most institutional footprint in the pure-solar category.

The concentration cuts both ways. TAN's five-year return remains negative at about minus 16% even after this year's rally — a reminder that when solar drawdowns hit, they go deep. Meaningful weights in Chinese-listed names also mean tariff policy and trade headlines move this fund harder than a diversified renewable basket.

ICLN: The global core holding

ICLN tracks the S&P Global Clean Energy Transition Index across 22 countries including the US, Spain, Denmark, China, and Brazil, charging 0.39% in fees — the cheapest of the three by a wide margin. Top holdings typically anchor on First Solar, Enphase, Iberdrola, Vestas, Orsted, and US utilities, giving the fund a barbell of pure-play renewables and utility-scale developers.

That utility weighting explains why ICLN has lagged TAN and PBW in 2026. Utilities dampen drawdowns and also cap the upside when sentiment turns. The fund's 44% slide from end-2021 through end-2024 happened in a vehicle holding regulated utilities and grid operators, which is as defensive as clean energy gets. The trade-off is a smoother ride, slower upside, and foreign-exchange risk from the global mandate.

PBW: The high-beta small-cap basket

PBW uses an equal-weighted methodology that tilts toward smaller, earlier-stage US clean tech names across solar, wind, EVs, hydrogen, batteries, and grid hardware. It is a small fund at roughly $530 million in assets with a 0.6% expense ratio, which is why most institutional allocators ignore it.

The case for PBW is leverage to the same structural drivers without the mega-cap weighting that capped ICLN's 2026 move. The case against it is visible in the chart: PBW remains down about 39% over five years even after the year-to-date spike, and its small-cap basket has historically been the most volatile name in the category in both directions.

Which fund fits which investor

ICLN suits investors who want clean energy as a long-term portfolio sleeve and prioritize expense ratio, drawdown control, and global diversification. TAN fits those who want concentrated exposure to solar manufacturing and the AI power demand thesis and are willing to accept tariff and concentration risk. PBW works as a smaller satellite position for investors seeking the highest-beta small-cap basket and who can tolerate the volatility that comes with it.

The risks that broke the category last cycle have not disappeared. Policy can shift against renewables in a single election cycle. The 10-year Treasury near the 98th percentile of its 12-month range means rate pressure has not gone away. And the AI power demand tailwind is not evenly distributed — hyperscalers signing large baseload contracts have leaned heavily on nuclear and gas alongside renewables. The cleanest read of the thesis is that solar takes meaningful share of new generation, not all of it.

TAN trades at roughly 18 times forward earnings, a premium to the broader market that reflects the AI demand narrative but leaves little room for execution missteps. ICLN's utility-heavy composition means its valuation is more anchored to regulated returns than to growth expectations. PBW, with no positive earnings across most of its holdings, is a pure momentum play on sentiment and capital flows. The structural case for clean energy in 2026 is stronger than it has been in years, but it comes with real conditions attached.

This article is for informational purposes only and does not constitute investment advice.