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Does solar have a deflationary effect?

In 2022, Time magazine ran the headline: ‘If the U.S. Wants to Fully Tackle Inflation, It Needs to Tackle Climate Change.’ 

Now, you would be forgiven for asking the question: How does climate change impact inflation?

After all, the maelstrom of COVID-19 lockdowns (hoarding savings and then spending), plus supply chain challenges stemming from the war in Ukraine, are the most-cited inflationary forces.

But what if there is something more under the surface?

Climate-linked disasters don’t only affect the communities close to them. Disrupted transport, scorched crops, and destroyed energy supplies are all linked to supply challenges.

But it’s not just extreme weather events. Oil prices have a role to play in inflation dynamics. When fossil fuel prices rise, ordinary people are squeezed by higher transportation costs.

Or, as Head of Climate Research at Andurand Capital Management LLP, Mark Lewis declared: “Wind and solar are intrinsically deflationary, whereas fossil fuels are intrinsically inflationary.” Solar, particularly, has caught the attention of firms like Goldman Sachs because analysts believe its future growth potential is underestimated.

But it’s also challenging to pick the winning horses. This is where ETFs come into their own — a basket of companies aligned to a structural growth trend ranging from solar to wind power.

For example, Green Energy & Technology ETF (C5KG) includes pure-play solar PV developer, Solaria, among other companies that are linked to onshore grids and wind. The full list of fund holdings for C5KG is available here (CSV file).

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