In recent years, renewable energy stocks have struggled, largely due to the high interest rates following the Covid-19 pandemic. The iShares Global Clean Energy ETF (NASDAQ:ICLN), the world’s largest green energy ETF, has dropped 13.9% over the past 52 weeks. In comparison, the S&P 500 has gained 10.7%. The solar and wind energy sectors haven’t performed much better. The Invesco Solar ETF (NYSEARCA:TAN) has fallen by 25%, while the First Trust Global Wind Energy ETF (NYSEARCA:FAN) has gained only 2.6%. Renewable energy projects are particularly vulnerable to interest rate changes because they require significant upfront capital to develop. As interest rates rise, the cost of electricity from renewable sources increases more than that from fossil fuels. A 2020 International Energy Agency analysis found that a 5% interest rate rise boosts the cost of electricity from wind and solar by 33%, but has only a small effect on natural gas plants.
Despite these challenges, the fundamentals of the clean energy sector remain strong. Last year, the U.S. added a record-breaking 50 gigawatts (GW) of new solar capacity, the largest addition of any energy technology in more than 20 years. As a result, green energy investors are seizing the opportunity to acquire clean energy assets at lower prices. Trium Capital, a hedge fund manager, points out that the retreat of oil giants from renewable energy projects has made the market less competitive and more appealing. “The fundamentals of renewable power are as strong as they’ve ever been,” said Ignacio Paz-Ares, managing partner and deputy chief investment officer at Brookfield Asset Management. “When there is a disconnect between market noise and the actual fundamentals, it creates an excellent opportunity to acquire assets at attractive prices.”
Brookfield has been actively expanding its renewable energy portfolio, including a €6.1 billion ($6.6 billion) acquisition of French developer Neoen SA, a £1.75 billion ($2.3 billion) stake in UK offshore wind farms from Orsted A/S, and a $1.7 billion purchase of an onshore renewables business from National Grid Plc. Paz-Ares emphasized that Brookfield will continue searching for more clean energy opportunities.
Brookfield is not alone in this pursuit. KKR & Co. is raising up to $7 billion for its first Global Climate Fund, and Copenhagen Infrastructure Partners recently closed its largest-ever renewables fund, worth €12 billion. They, too, are planning to acquire undervalued clean energy assets.
However, the outlook for clean energy stocks could take a negative turn if Donald Trump wins a second term. On his first day back in the White House, Trump issued an executive order that effectively halted the growth of wind energy in the U.S. The order freezes approvals for onshore and offshore wind projects, halts offshore wind lease sales, and calls for a review of existing leases. This move has created uncertainty about the future of wind energy in the U.S., sparking criticism from environmental groups and renewable energy advocates.
Trump has also pledged to eliminate any unspent funds from the Inflation Reduction Act (IRA), which was signed into law by President Biden in 2022. The IRA provides $369 billion in tax incentives and subsidies for clean energy. Additionally, the Biden administration passed the Infrastructure Investment and Jobs Act (IIJA), which authorized $1.2 trillion in spending for infrastructure and transportation, including $43 billion for battery manufacturing and $7.5 billion for EV infrastructure.
Recently, Politico reported that over 60% of IRA investments could be at risk if Trump returns to office. With the GOP in control of both the Senate and the House, a unified Congress could jeopardize Biden’s signature climate legislation.
Related Topics:
- Energy CEOs Urge Canada to Speed Up New Pipeline Projects
- Why Biogas is Better than Cow Dung: A Detailed Comparison
- Renewable Energy Stocks Hit Five-Year Lows