May 10, 2006
Another Clean Energy Index Launches to Capitalize on Transition from Dependence on Fossil Fuels
by Bill Baue
The NASDAQ Clean Edge US Index joins several other recently launched clean energy indexes tracking
solar photovoltaic, biofuel, wind, and fuel cell companies.
As clean energy shifts from the periphery of the political landscape to the center, investment
markets are reflecting this transition. Evincing this is the announcement yesterday of the launch
of yet another clean energy index, the NASDAQ Clean Edge US Index, which will go live on May 18.
"Clean energy is not alternative--it is becoming mainstream business," said Ron
Pernick, co-founder and principal of Clean
Edge, which provides market research on clean energy. "In 2005, the biofuel, wind, solar
photovoltaics, fuel cells markets alone were worth $40 billion globally and have been expanding in
the double digits annually."
"The index is meant to capture this transition from a
fossil-fuel based economy to a clean-energy driven economy," Mr. Pernick told SocialFunds.com.
The NASDAQ Clean Edge US Index joins other indexes tracking this space, including the
WilderHill Clean Energy Index (ticker: ECO), the
WilderHill New Energy Global Innovation Index (NEX), and the
Cleantech Index (CTIUS), all
recently-launched on the American Stock
"This is a rapidly growing sector with long-term interest--so we expect
that there will be other indexes tracking clean energy," said Mr. Pernick. "We are not the first
index in the space, but we believe that the combination of NASDAQ and Clean Edge make for a very strong partnership."
The ECO index compares most closely with the NASDAQ Clean Edge US Index, as both cover clean
energy providers in the domestic market, while NEX covers clean energy in the global market. The
purview of the Cleantech index extends to cover clean technologies not included in the clean energy
sectors, such as services that improve operational performance or efficiency while reducing energy
consumption, waste, or pollution.
"A number of differences exist between our index and
others because of the selection criteria and weighting methodology applied," Mr. Pernick said.
"Relying on industry insight, market research, domain expertise and knowledge, Clean Edge applies a
selection criteria and methodology that considers a company's revenue streams, core areas of
business, ability to capture the growth potential of the clean-energy sector, and stated and
private clean-energy developments and activities."
Companies selected for inclusion fall
into one of five sub-categories. These categories include renewable electricity generation (such
as solar photovoltaics), renewable fuels (such as biodiesel or ethanol), energy storage and
conversion (such as hydrogen fuel cells), energy intelligence (such as smart grids), and advanced
materials (such as nanotech.)
There are currently 47 companies in the index, including
Evergreen Solar (ESLR), Sun Power (SPWR), Suntech
Ultralife Batteries (ULBI), Maxwell Technologies (MXWL), Greatbatch
and Zoltek (ZOLT). Index returns will be
calculated and reported in two ways: on a price return basis, with the ticker symbol CLEN, and on a
total return basis, ticker CLNX.
As for weighting, the NASDAQ Clean Edge US Index uses a
modified market capitalization weighted approach. The ECO index, on the other hand, uses a
modified equal weighting approach.
"We weight the Index sectors according to importance
and technological relevance, not views about individual stocks," said Rob Wilder, CEO of index
provider WilderShares. "ECO components are
evenly divided within a sector to assign weights--we feel this modified equal weighting is the most
intellectually-robust approach for ECO."
The NEX index uses a double-modified
equal-weighting methodology. This approach first modifies weighting by sector to ensure fair
representation across different technologies within the clean energy industry; and then separates
into two market capitalization bands within each sector, to reflect the mix of larger and smaller
companies in the sector.
Of course the key indicator of the success of an index is the
launching of investment vehicles tracking it. For example, the PowerShares Clean Energy (PBW)
is an exchange traded fund (ETF) tracking the ECO index that launched in March 2005.
NASDAQ Financial Products division is in earnest discussions to create index futures, options,
ETFs, and traditional funds," said Wayne Lee, associate director of corporate communications at