Green energy stocks and indexes have performed poorly so far this year, while fossil fuel stocks have generally seen their value increase, according to a report by the Financial Times.
The S&P Global Clean Energy Index, composed of 100 of the largest companies related to solar, wind, and other green technologies, has seen 20% of its value disappear in the last two months as inflation and higher interest rates have driven up costs, according to the FT. Despite receiving tens of billions of dollars in government subsidies via legislation like the Inflation Reduction Act, many of the West’s green energy companies appear to be significantly underperforming the fossil fuel energy sector.
While the Global Clean Energy Index has lost significant value, the S&P 500 Energy Index, which is made up of many oil and gas companies, is up 6% in the same time period, according to the FT. The Global Clean Energy Index is on track for its worst annual performance since 2013. (RELATED: Newsom Promises To Sign Emissions Disclosure Law That Could ‘Further Politicize’ Corporations)
A reporter asked Kamala Harris how a family was supposed to get relief from the Inflation Reduction Act “if they don’t have the initial money” to spend on their green energy solutions.
Her response: “Well we think about the costs of things in totality.” pic.twitter.com/Vn5GKv8XdP
— Daily Caller (@DailyCaller) September 14, 2022
The Biden administration has spent and regulated aggressively to spur the green energy transition and develop the necessary supply chains to get there. The administration has established goals of having the U.S. power sector reach net-zero carbon dioxide emissions by 2035 and for the overall U.S. economy to reach net-zero by 2050.
Several traders assert that green energy companies rely on business models which are ill-equipped to maneuver in a high-inflation, high-interest rate environment, according to the FT.
“There’s a dark cloud hanging over green stocks,” Martin Frandsen, a portfolio manager at Principal Asset Management, told the FT. “Two years ago we got a huge growth in commitments to hit net zero, which translated into a lot of investment opportunities. Then we hit this inflation wave and companies that locked in their [electricity] prices have been left very exposed, the lag effect is hitting now.”
Some companies, particularly in the wind power industry, agreed to provide electricity to certain states and utility companies several years ago, before inflation and higher interest rates were weighing on the U.S. economy. Now, those contracts and agreed-upon prices may be too low to be sufficiently profitable, even with the benefit of government tax credits and other subsidies, a reality which has prompted several developers to request that New York state allow them to renegotiate the underlying contracts.
Orsted, a Danish offshore wind company with several developments off the East Coast, has seen its shares fall by nearly 30% since August, U.S.-based solar and wind company NextEra Energy announced Wednesday that it had reduces its three-year growth projections and Vattenfall, a Swedish wind turbine company, announced in July that its costs had spiked by 40%, according to the FT.
Meanwhile, numerous European solar module manufacturers have cautioned that cheaper Chinese products may price them out of their own markets, according to FT.
Neither the White House nor the Department of Energy responded immediately to requests for comment.
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