In recent years, clean-energy stocks experienced a significant surge, driven by various factors. The election of Joe Biden as U.S. President in November 2020 played a crucial role, as it ushered in a wave of speculative capital into the sector.
Joe Biden’s Impact on Clean-energy Stocks
This influx was fueled by expectations that Biden would fulfill his campaign promises, such as rejoining the Paris Climate Accord and aiming to decarbonize the power sector by 2035 fully. The enthusiasm for these stocks reached its zenith in January, following Democratic victories in Georgia’s Senate runoffs. During this period, major clean energy indexes like the iShares Global Clean Energy ETF and the Invesco WilderHill Clean Energy ETF saw substantial gains, climbing 53% and 88%, respectively, from the beginning of November to February 1.
Significant government initiatives also bolstered this popularity. For instance, the U.S. House of Representatives approved a budget resolution for a $3.5 trillion infrastructure spending plan. This framework included substantial allocations for clean energy, such as $135 billion for addressing forest fires, reducing carbon emissions, and alleviating droughts. There’s also $198 billion for developing and implementing clean energy.
These federal actions and investments were crucial in pushing the timelines for expanding new technologies in the clean energy sector. Those include advanced batteries, offshore wind, and green hydrogen technology. This legislative support was expected to shift investor mentality towards more climate-friendly and ESG-aligned investments.
Shifting Investor Sentiment as Stock Doesn’t Perform
However, the current market performance of clean-energy stocks indicates a significant shift in investor sentiment. In 2023, investors withdrew a record $765 million through August from the iShares Global Clean Energy ETF. That marks the largest net outflow for any January-August period on record for this fund.
A key driver behind these withdrawals was the relative attractiveness of other sectors, such as artificial intelligence. Those saw significant inflows. The clean energy sector, having outperformed others in the past two years, was due for reduced investor attention.
However, high-profile disappointments in critical areas of the clean energy industry, particularly in the wind power sector, contributed significantly to this trend. Issues included disappointing offshore auction results in Britain and the United States. Corporate challenges, such as weak demand and high interest rates, also impact solar inverter makers like Enphase Energy.
Is Clean Energy Still “Hot”?
Despite these setbacks, the long-term outlook for clean-energy stocks remains cautiously optimistic. The electric vehicle market, a key aspect of the energy transition, continues to show promise, albeit facing challenges like potential investigations into subsidies for Chinese EV makers. While these weak spots have justified a retreat in investment, it remains unclear if these setbacks will lead to sustained reversals.
The broader push for cleaner energy sources still enjoys wide support at societal, political, and corporate levels, suggesting that even modest success stories in renewable energy projects could reverse the current trend of fund outflows. Short-term traders might find the current low prices of major clean energy ETFs an attractive entry point, given the enduring scale of support and investment in the broader energy transition.
