Clean energy stocks have suffered significant losses in recent months. Why is this and whether the shift to renewable energy is doomed to failure.
• High interest rates are hurting clean energy stocks
• Energy boss warns: relying on fossil fuels is “completely wrong”
• According to experts, the transition to clean energy is not entirely doomed to failure
Clean energy stocks are collapsing
About a year ago, US President Joe Biden promised billions of dollars to help the United States transition to clean energy as part of his climate law. However, the situation is now getting worse, as Bloomberg reports: Some of the most ambitious renewable energy projects have now been put on hold, sales of electric cars have missed their targets and investors have fled the sector in droves. What followed was U.S. clean energy stocks plunging by about $30 billion over the past six months – a market that many investors had previously expected to thrive after the law’s passage.
Few industries have been spared from rising interest rates, but renewable energy has perhaps been hit the hardest. In a sector that relies on building large, expensive facilities like solar and wind farms, high interest rates have reduced profit margins so much that projects failed and companies went bankrupt. The initial enthusiasm following the passage of the Inflation Reduction Act quickly faded, and within the six months ended November 27, a quarter of the market value of U.S. companies included in the S&P Global Clean Energy Index was lost. This also highlights the obstacles that stand in the way of the US President’s ambitious climate goals, as Bloomberg explains.
But it’s not just the significant financing costs that are causing problems for clean energy companies. In addition, it is difficult to attract potential neighbors to projects, obtain official approvals and connect to a “creaking” power grid that is unable to process all of the planned renewable energy.
Meanwhile, oil and gas producers don’t seem to want to back down either. Quite the opposite: They are now doubling down on their plans to continue pumping. And America’s path to a carbon-free grid by 2035 is getting tougher by the day.
“We’re now in a moment of realization where some of the euphoria has faded and we’re starting to realize that it still won’t be easy,” Eric Scheriff, senior managing director at Capstone, told Bloomberg.
“Ultimately, green investments must be based on economic realities,” said Jerome Dodson, the now-retired founder of Parnassus Investments. He sold his shares in the company in 2021 – “at the peak of the market,” as he explains – and predicts that wind and solar stocks could fall another 15 to 20 percent over the next six to eight months.
But it’s not just US companies that are struggling. China’s largest solar and wind turbine manufacturers recently reported shrinking profits. A fault in thousands of wind turbines forced Siemens Energy AG to seek a 15 billion euro ($16.2 billion) rescue operation led by the German government. And Danish wind power developer Orsted is struggling to recover from a $4 billion writedown stemming from two abandoned U.S. wind power projects. In many ways, however, the problems in the United States are most surprising, Bloomberg said.
Energy boss warns: Selling off clean energy is “completely wrong”
And Andrés Gluski, CEO of the energy company AES, also explains that investors are making a big mistake if they withdraw their investments from clean energies or even rely on fossil fuels.
Tightening oil market conditions and the era of increased capital discipline have sparked a rally in oil and gas stocks. Despite pressure from environmentalists to avoid the sector, investors are investing again in oil and gas companies. A recent analysis by S&P Global Ratings shows that raw materials companies face virtually no additional borrowing costs compared to less polluting companies.
“We’re having the hottest year on record… And yet Wall Street is favoring oil companies over renewable energy companies,” he said in an interview with the Financial Times. The expansion of renewable energies and low-carbon construction are the “right side” of history, and it is only a matter of time before this will come true. “Wall Street can do a lot wrong in the short term,” said Gluski.
Change is not doomed to failure
But despite the many difficulties, most analysts do not expect the transition to clean energy to fail completely, explains Bloomberg. Lawmakers are still convinced of the energy transition, even if the results of their previous measures have fallen far short of the goals. And companies are also striving for clean energy for their offices and data centers. “The trend continues toward clean energy, although we are experiencing some minor growing pains at the moment,” said Sonia Aggarwal, CEO of consulting firm Energy Innovation, who helped develop the IRA as a special assistant to President Biden.
And investors don’t seem to have given up on switching to clean energy, as MarketsInsider reports. Despite the negative performance of clean energy stocks this year, the sector is experiencing a flood of investments, supportive measures to promote new projects and hype around sustainable ventures. “I think the practical reality is that we have a pretty reasonable recovery path ahead of us over the next few years, which I think is strongly supported by the IRA. And mind you, I think it’s not even just the IRA. Fundamentally “It’s the case that demand is recovering,” said Julien Dumoulin-Smith, a research analyst at Bank of America.
Editorial team finanzen.net
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