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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 Exchange.

"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 Power (STP), Ultralife Batteries (ULBI), Maxwell Technologies (MXWL), Greatbatch (GB), FuelCell Energy (FCEL), Itron (ITRI), 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.

"Our 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 NASDAQ.

 

 
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