Things Are Looking A Bit Dire For Renewable Energy Firms

Things Are Looking A Bit Dire For Renewable Energy Firms
Theodora Lee Joseph, CFA

5 months ago1 min

What’s going on here?

High interest rates have been anything but groovy for renewable energy companies.

What does this mean?

The S&P Global Clean Energy Index measures how the thirty biggest renewable energy companies are doing, and right now, they could be holding up a whole lot better. Down just over 20% from only two months ago, the index looks like it’s headed for its worst year in the last decade. That’s probably because major green energy firms lock in prices way ahead of time with long-term contracts, which isn’t ideal at a time when rising interest rates are pulling up their costs and making their borrowed cash more expensive to pay off.

S&P Global Clean Energy Index

Why should I care?

For markets: Money can’t buy happiness.

Even flush with loads of cash in the form of tax credits, subsidies, and loans from the US and European governments, green energy companies are still slipping. What’s more, that external assistance means plenty of firms that couldn’t have survived off their own back are still alive and kicking. So this mass underperformance could end up being a game-changer: suffering companies will need to rethink their strategies – renegotiating contracts and cutting out unprofitable ventures – to stay above water. So in theory, the future will be full of energy businesses built to last.

The bigger picture: Misery loves company.

Regular stocks are feeling the heat of high interest rates too. See, those rates minimize the reward that investors get from holding onto riskier stocks rather than more stable assets like bonds or cash. And at the same time, rising rates have pulled returns on bonds and cash up to their highest point in more than 20 years. For investors, ditching stocks and filling up savings accounts has been a no-brainer.

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