ESG - sustainability

Renewable energy: today's crisis cannot hide future opportunities

Posted by MoneyController on 17.11.2023

Renewable and green energy stocks are going through a difficult period, but according to a portfolio manager at Triodos Investment Management, it is worth holding on and continuing to invest to reap the benefits of the energy transition.

Renewables: a bearish stock market

It is easy to see that 2023 was a particularly difficult year for renewable energy stocks. On ExtraETF, Arjan Palthe, portfolio manager at Triodos Investment Management, mentions a few indices in this respect: This year, the MSCI Global Alternative Energy and the S&P Global Clean Energy have lost 42% and 36% respectively. By contrast, the MSCI World index is up 5%.

Interest rates, inflation and economic slowdown weigh on renewables

The bear market in clean energy stocks is even more striking when compared to the bull market in traditional energy stocks. This downturn in the markets is also due to rising interest rates, which make it more expensive for companies to finance themselves and slow down the development of new projects, Palthe explains, citing an article in the Financial Times. Then there is inflation and the worsening economic outlook, factors that also tend to reduce the spending power of consumers who would be interested in using renewable energy.

Wind and solar projects in trouble

It is no surprise, then, that some offshore wind projects off the coast of the United States and the United Kingdom have come to a standstill, that others involving solar panels in California are in trouble, and that demand for renewable energy in some European countries has also fallen. On top of this, there is opposition from some sections of the public and politicians, as well as the difficulties that governments have encountered in financing projects.

The promising future of renewables

Despite all this, there are reasons to believe that those who invest in renewable energy and green policies will be rewarded in the future. Palthe quotes data from the statistical institute IRENA, which predicts that investment in the sector will rise from 500 billion in 2022 to 1.3 trillion in 2030. This is due both to growing investor awareness and the willingness of many companies to look to the future. Secondly, the US and Europe have launched plans worth hundreds of billions of dollars (the Inflation Reduction Act and the European Green Deal) precisely to support the energy transition. In short, Palthe believes that despite a difficult period, the renewables sector will grow and reward investors with better returns.

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