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High-interest rates and inflation left the sector’s share prices plummeting more than 30% in the past three months.
ADVERTISEMENTDespite EU and US government vows to support the crucial green transition, offering billions in tax credits and subsidies, renewable energy has been losing investors’ confidence, particularly in the past three months.
A big indicator for this decline in trust is the performance of the S&P Global Clean Energy Index, comprised of 100 major solar, wind power, and other renewable-related companies.
It has lost more than 30% in 2023, with most of the decline taking place since July.
How much money is leaving the sector globally?
Renewable energy funds globally suffered a net outflow of $1.4 billion (€1.32 billion ) in the July-September quarter – the biggest ever quarterly outflow, according to Reuters, citing the latest LSEG Lipper fund performance data.
However, the outflows only partially reversed the trend for the first half of 2023 when investors pumped in a net $3.36 billion.
The sector’s total assets under management now stand at $65.4 billion, a 23% decline from the end of June, according to the data.
By contrast, the oil and gas-heavy S&P 500 Energy Index is up slightly this year.
Investors have been exiting traditional energy funds too, but the rate has slowed – net outflows reached $438 million in the last quarter compared with $3.32 billion in the previous three months.
Why is this happening?
Renewable energy firms with high growth potential are falling victim to the current economic climate shaped by high interest rates, elevated costs and supply chain issues, with China dominating the solar supply chain, for instance.
Renewable companies often have long-term contracts with a fixed price, while their current borrowing costs are soaring due to high interest rates and raw material is affected by high inflation.
The rise in costs is therefore eating away their profits.
Companies including Denmark’s Orsted, the world’s largest offshore wind farm developer, and US panel maker First Solar have seen sharp share price falls in recent months.
“Renewable energy funds have faced weakened sentiment due to company performances in recent quarters and a shift in investor attention this year towards other themes like AI and US Infrastructure,” said Global X research analyst Madeline Ruid.
European projects are having difficulties too
SolarPower Europe, representing the European solar power industry, has warned last month that a flood of cheap Chinese products are underpricing the European companies, and undercutting the EU’s efforts to boost the local green market.
Wind projects off the coasts of the UK, the Netherlands and Norway have been delayed or shelved due to rising costs and supply chain constraints, raising concerns about countries hitting their 2030 renewable energy targets.
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