The sector’s share prices have dropped by over 30% in the past three months as a result of elevated interest rates and inflation.Thank you for reading this post, don't forget to subscribe!
Despite promises from the EU and US governments to support a significant shift towards green energy, offering billions in tax incentives and subsidies, investor confidence in renewable energy is diminishing, particularly in the last three months.
A significant indication of this loss in confidence is the performance of the S&P Global Clean Energy Index, a compilation of 100 prominent companies in solar, wind energy, and other renewable-related industries.
The index has declined by more than 30% in 2023, with the majority of the decrease occurring since July.
What is the global outflow of funds from this sector?
Renewable energy Funds globally experienced a net outflow of $1.4 billion (€1.32 billion) in the July-September quarter – the largest quarterly outflows ever recorded, according to Reuters, citing the most recent LSEG Lipper fund performance data.
However, the outflows partially reversed the trend in the first half of 2023, when investors withdrew a net $3.36 billion.
According to the data, the total assets under management in the sector now stand at $65.4 billion, a 23% drop from the end of June.
In contrast, the oil and gas-heavy S&P 500 energy index has experienced a slight increase this year.
Investors are also withdrawing from traditional energy funds, but the rate of withdrawal has slowed – net outflows amounted to $438 million in the last quarter, compared to $3.32 billion in the previous three months.
What is causing this trend?
Renewable energy companies with significant growth potential are falling prey to the current economic environment due to elevated interest rates, escalating costs, and supply chain difficulties. For example, China dominates the solar supply chain.
Renewable companies often have long-term contracts with fixed prices, while their current borrowing costs are increasing due to elevated interest rates, and raw materials are being impacted by high inflation.
Consequently, the rise in costs is eating into their profits.
In recent months, companies such as Denmark’s Ørsted, the largest offshore wind farm developer in the world, and US panel maker First Solar, have witnessed significant drops in share prices.
“Renewable energy funds have encountered weak sentiment due to company performance in recent quarters, with investors shifting their focus to other themes such as AI and US infrastructure this year,” said Madeline Ruid, a research analyst at Global.
European projects are also facing challenges
SolarPower Europe, an organization representing the European solar energy industry, warned of flooding last month, as inexpensive Chinese products are being sold at lower prices than European companies, undermining EU efforts to promote local green markets.
Wind projects off the coasts of the UK, the Netherlands, and Norway have been delayed or halted due to rising costs and supply chain bottlenecks, raising concerns about achieving the countries’ 2030 renewable energy targets.