Renewable energy stocks hit hard amid soaring debt costs

Renewable energy stocks have been hit hard in recent months, performing significantly worse than fossil fuel companies due to higher interest rates.
The S&P Global Clean Energy Index - comprising 100 major solar, wind power, and other renewables-related companies - has dropped 20.2% in the past two months, according to a Financial Times report.
Total renewable capacity additions have been growing steadily, but stock prices are under pressure.
This puts it on track for its worst performance since 2013. In contrast, the oil and gas-heavy S&P 500 Energy Index has seen a 6% increase, according to the World Economic Forum.
The industry received a fresh blow on Friday, after a sales warning from equipment provider SolarEdge Technologies sent shares in solar stocks across the US and Europe tumbling as much as 25%.
Until recently expected to displace oil-and-gas companies from mainstream investment portfolios, clean energy stocks have instead become a no-go zone for many.
Investors have been pulling money out, wiping over $280bn from the market capitalisation of green stocks globally since their August 2022 peak — not quite boom-to-bust but a dramatic unravelling for a market that was all the rage at the turn of the decade, according to a Bloomberg report.
Now, with the yield on the 10-year US Treasury bond creeping toward 5%, their fortunes could be about to take another hit.
Higher yields make it costlier to fund the huge investment that clean energy requires, giving investors reason to fret about returns.
On top of that, the pace of decarbonisation is in question and oil’s march back toward $100 a barrel is renewing interest in fossil fuels.
SolarEdge Technologies sank as much as 25% in US premarket trading last Friday after it warned its third-quarter revenue will come in below its previous guidance range.
Other firms in the sector, including Enphase Energy Inc, Sunrun Inc, SMA Solar Technology and Meyer Burger Technology also tumbled.
The MSCI Global Alternative Energy Index – which counts Orsted A/S, Vestas Wind Systems A/S, First Solar Inc, and Enphase Energy among its top constituents – has slumped about 39% this year.
In value terms, it’s down almost $152bn in 2023 alone.
Retail investors have also fled, with global clean energy equity ETFs seeing outflows amounting to over $1.1bn in total since December 2022. They had attracted more than $15bn in the previous three years.
True, there have been some pockets of speculative frenzy in green shares this year, with stocks linked to lithium — critical for electric-vehicle batteries — skyrocketing in Australia and India.
“When I speak to colleagues and other investment managers, they say ‘let’s get out’,” said Marcus Poppe, co-head of European equities at DWS Group.
The picture is a stark contrast with the immediate post-Covid period when US and European governments doubled down on net-zero agendas.
So far, companies and governments are still committing cash to renewables — the $358bn of new investment seen in the first half of 2023 is a record for any six-month period, according to BloombergNEF.
But progress, including on US President Joe Biden’s $2tn Inflation Reduction Act, may still be falling short.
BNEF estimates that keeping net zero on track requires at least $4 to be spent on low-carbon energy supply globally for every $1 that goes to fossil fuels from 2021-2030. Investment hasn’t reached that ratio yet.
Investors have been told that over $4tn per year is needed for the next 30 years to achieve net zero by 2050, according to the WEF.
Despite governments offering billions in tax credits and subsidies, the renewable sector is struggling.