Would love to know what you all think of this article I wrote.
Unprecedented amounts of private investment has poured into clean energy over the last five years. So much so that people started complaining that fossil fuels were falling out of favour too fast. Clean energy funds attracted so much money it was inflating valuations for companies and started looking like a bubble. The pandemic accelerated this trend. As people were stuck at home, they poured money into stocks, including high-growth energy companies. ESG (Environmental, Social, Governance) investing became the hottest trend on Wall Street.
But the party may be coming to an end, at least for now. And this is a problem.
Clean energy stocks have been losing steam . The S&P Renewable Energy and Clean Technology Index has dropped 12% since 8th November. The iShares Global Clean Energy Index was at 6-month-high on 1st November and has fallen 11% since. Clean energy stocks are not alone of course: tech stocks have also been taking a beating over that time. But clean energy companies are seen as more vulnerable as they are smaller and less well known (other than Tesla).
What’s behind the drop? The downturn had started even before the Omnicron variant was found. There are two other, bigger, worries: the US Federal Reserve will raise interest rates to curb higher inflation; and that it’s ending its asset-buying program. Higher interest rates will make borrowing more expensive for smaller companies. The end of asset-buying could take the air out of the market’s exponential growth since March 2020. Investors are getting jittery and moving out of risky investments.
Some people dismiss all this as greenwashing . But it has had a real, positive, impact. It has made financing for fossil fuels more expensive and promoted financial markets to take clean energy seriously. Financing for oil and coal projects has became more expensive. Tesla’s rising valuation alone has forced the car industry to take EVs more seriously. Big Oil’s stagnant valuations have forced them to invest into clean energy too. Moreover, governments alone cannot do enough to switch us to clean energy. We need private investment into clean energy too. And many governments are more dependent on coal and oil revenues to cooperate internationally.
If the slide continues , it may lead to a drop in investment into clean energy at a crucial time. Fossil fuels have not hit their tipping point yet, they may yet get back into favour again. There are other dark clouds on the horizon too: solar, wind and battery manufacturers have all warned of rising raw material prices. That may impact investment into clean energy too.
But it’s not the end of the world . The acceleration from fossil fuels to clean energy is inevitable. The only question is how fast we do it. That inevitability creates its own momentum and market incentives. Clean energy companies may be in for some short term pain; some may even go bust. But the medium/long term growth is all but assured. Our planet depends on it.
I think a four week period where the markets were volatile is far too short a period to draw any conclusions.
True, but I feel a lot of clean energy stocks have been overpriced for some time due to hype.
A lot of them are trading at well over 50x PE ration (or no ratio at all due to not turning a profit).
I think we are seeing the start of a correction. Global Clean Energy £INRG has barely moved in the past 12 months…(-1.85%) even though we are in an insane bull market.
30-50 years away from dramatic renewable change, for the sectors to be in full force. Education & specialist training require immense inflows of talented students, coupled with the most important requirement - people need some way of affording this new lifestyle? The growth & change requires huge uptakes and affordabilities.
Gen Z are being sold this dream, what they’re not being told is that it’ll probably be Gen Z’s grandchildren who will be benefiting from the move to higher sustainability and by ‘benefiting’, I really mean ‘paying high prices for’.
By the look of the direction it is all going, I take it the plan is to put 70-80% of the population into high rises? And then the more wealthier will be the main users of brand new electric vehicles in countryside locations.
30-50 years I’d say before widespread creation & adoption of a cleaner lifestyle for the population. By that time the wealth distribution will be INCREDIBLY out of hand beyond anything that’s ever been lived through.
My investment will stay predominantly with the US & Emerging Markets for that long term sustainable growth. I simply do not see the UK as growth sector in this area.
How on earth the sector will accommodate brand new electric vehicles in-line with minimum wage is yet to be seen, that’s the main reason I see the inequality significantly rising rather than levelling.
Not the most positive outlook for most people but look at who has run the UK the past few decades… Do you truly believe the incredibly hard working class are being considered as people who will benefit from this sector, or be the people used to create it but not able to afford to use it?
My estimate is that everyone’s air quality will significantly improve 50 years from now, and that large scale gated communities will have risen 10,000%.
I think valuations depends on how you see the future, not just current profit. Tech companies had insane P/E ratios too for quite a while, and many fulfilled those future expectations. the same may apply here.
I think INRG didn’t benefit from that huge price inflation earlier in the pandemic, and is still recovering from that.
Man I am glad I don’t share this outlook I’d be nearly dead by the time it would be worth living!
One challenge for renewable energy companies/funds like UKWind/TRIG/etc, is that progress has been too good.
The cost of of solar and wind generated electricity is dropping sufficiently quickly that the Net Asset Value of the electricity the generate in future might be too optimistic. Good news for the planet, not necessarily good news for the investor.
COP conference also made a short term difference, a lot of things were in the news, hydrogen stocks etc
There is no grounding for anything you’ve said here, it’s just opinion. Electric cars are already cheaper overall than petrol, and will soon be cheaper to buy. Renewable energy is already cheaper than most other forms of generation, and is getting cheaper. Wealth inequality is already nuts, but still everyone is getting richer, including the poorest. Concentration in cities is due to many factors, being forced into high rises by government on the pretence of climate change mitigation is not one of them.
I’m sorry but this is really odd and not supported by any facts.
The UK already generates around 30% of its electricity via clean renewable energy sources (solar, wind + hydro) - over 50% if you include nuclear (153 TWhs / 274 TWhs in 2021).
30% of new cars sold in Nov were partly or fully electric. Worldwide about 10% of all new cars are electric. The growth is exponential. I could list a whole bunch of other stats to illustrate that we are rapidly approaching a tipping point in clean energy adoption.
By all means feel free to ignore this in your portfolio. Those who watch this area more carefully will benefit.
Maybe, maybe not! Electricity prices have gone up recently, which helps them. Over the medium - long term electricity prices may drop a lot, which won’t be good for trusts like TRIG and NESF, but hopefully they’ll take this into account. The price of financing for clean energy is dropping fast too.
Fair point! It is a volatile period for sure, but if growth stocks take a beating for a longer period of time, and the fed’s tapering and interest rates rise has a bigger impact, we’re in for a more bumpy ride.
Have you been reading too much dystopian fiction / Philip K Dick @101?
Income inequality isn’t a new phenomenon, you only have to look at the industrial revolution, robber Barron’s or the gilded age. I’m.not saying that it’s not an issue but its not new.
None of us can predict the future with any sort of real accuracy.
During the industrial revolution many argued that there would be a Malthusian crisis. It didn’t happen!
Someone, somewhere may make a technological breakthrough that we don’t even know about yet which could meet human demands for energy, which is free, sustainable and causes no harm to out planet.
That’s my dystopian thoughts