From Barron's November 10:
Stocks related to wind, solar and other forms of renewable energy have fallen by a third this year. Only a handful may be ready to
Clean-energy stocks are suffering through their worst slump in years, causing the industry’s value to tumble by tens of billions of dollars and endangering America’s environmental goals.
Major auto manufacturers like General Motors GM -0.88% (ticker: GM) and Ford Motor (F) have delayed plans to roll out electric vehicles. Offshore wind developers are canceling or delaying projects that were expected to provide millions of Americans with carbon-free electricity. Homeowners, even in climate-conscious states like California, are buying fewer solar panels for their roofs. And green-power producers known for offering steady, reliable dividends have lost their veneer of safety. Rising interest rates have posed the gravest challenge to the industry, but supply-chain problems, inadequate electric transmission infrastructure, and competition from China are hurting, too.
The fallout has caused 76 of the 77 stocks in the Invesco WilderHill Clean Energy PBW -2.01% exchange-traded fund (PBW)—a green-power benchmark—to fall for the past three months (the one stock to rise is a tiny fuse maker). The ETF itself is down 32% since the start of the year, compared with a 14% gain for the S&P 500 SPX 0.33% index.Most of those stocks look set to keep dropping. Solar and wind companies are awash in mispriced inventory and face an extended stretch of high interest rates; they’re probably several quarters away from a financial rebound. Newer tech like clean hydrogen is years away from profitability. While some clean-energy stocks do seem headed for a rebound, even those call for some caution.
Beyond the financial fallout, the setbacks in green energy have broad implications for the environment, particularly after the hottest summer on record. A consortium of scientists known as the Climate Action Tracker says the country is off track to meet its 2030 goal to roughly cut emissions in half from 2005 levels, and won’t get there “without additional, drastic emission reductions measures.” That will require all of the force that the clean-energy industry can muster.
There are political implications, too. America’s energy transition, a key pillar of President Joe Biden’s agenda, is under threat. Biden wants America to produce all of its electricity without emitting carbon by 2035, a goal that depends on lightning-fast installation of new energy infrastructure. Last year’s Inflation Reduction Act earmarked at least $369 billion for clean energy. To make the government’s investment pay off, companies will need to spend trillions more. Biden can ill-afford delays.
Serious as they are, the industry’s setbacks are not about to halt the energy transition. They look more like a detour than a derailment. Unlike in past eras, the shift to renewable energy now has powerful momentum. Just about every electricity producer and seller in America is on its way to going green, albeit at different speeds, and they often face penalties if they backtrack. Tech advancements have made renewables cost-competitive with fossil fuel plants in many states, even without government help. And industrial-size batteries are solving a longstanding problem for renewables: They are keeping the lights on even when the sun isn’t shining and the wind isn’t blowing.
There’s another big force supporting the transition: private money. Even as the stocks crater, private investments are cascading into the industry. Outside of electric vehicles, in fact, the majority of investment in clean energy is happening in private markets. From August 2022 to August 2023, private-equity firms had invested $108 billion in new renewable energy and energy storage projects in the U.S.—more than all of the publicly traded North American utilities and independent power producers combined, according to S&P Global Commodity Insights.
The transition is “the first major industrial and technology investment cycle that occurs primarily in opaque private markets,” says Peter Gardett, the executive director of climate and clean-tech research at S&P Global Commodity Insights.Private-equity investors commit to long holding periods, and are less likely to react to day-to-day price gyrations. Copenhagen Infrastructure Partners, one of the world’s largest private clean-energy fund managers, is on track to raise 12 billion euros ($12.9 billion) for its newest fund by next year, despite the fact that a third of the fund will be invested in the most-troubled area in renewables—offshore wind. “That money is committed with us for many, many years, not just quarter to quarter,” says Tim Evans, a partner at the fund manager.
For investors who don’t have the institutional backing or personal wealth to buy into private funds, there are slim pickings in publicly traded stocks—but they do exist. The ones closest to rebounding look to be large producers of clean power. Thanks to long-term contracts that have remained intact, utility-scale producers like AES (AES) and NextEra (NEE) could eventually lead the sector out of its morass.
To understand what could go right in clean-energy stocks, it’s important to see what has gone wrong. The list is not short. It starts with high interest rates. Solar and wind projects, and new electric-vehicle plants, demand heavy upfront investments that should pay off over decades. With the cost of corporate debt doubling in the past two years, from 3.2% to 6.4% for Baa-rated bonds, it’s a bad time to be taking out new loans to finance capital projects. “It was an industry whose economics rested on low rates,” says Bobby Tudor, CEO of Houston-based Artemis Energy Partners, which invests in traditional and clean-energy companies. “When you have your cost of debt effectively doubling, it sort of wipes out your equity return.”....
....MUCH MORE,they go deep
As noted in the introduction to yesterday's "Carbon Capture: BlackRock and Occidental Petroleum Form $500 Million Joint Venture (BLK; OXY):
The technology (direct air capture) still isn't cost effective but the O'Biden-Podesta administration put some juicy incentives* into the Inflation Reduction Act for those who can afford to take advantage of same.
The grants and loans in the various bills were written by lobbyists for this stuff, they have no interest in sharing the spoils with portfolio investors. It is a very clubby club:
John Podesta Made a Fortune Consulting for Green Energy Billionaires. He Now Oversees a Federal Fund That Could Make Them Rich[er]
