Clean-energy sell-off is ‘very wrong’, warns US power group boss

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Clean-energy sell-off is ‘very wrong’, warns US power group boss

28 November 2023 Clean energy investing 0

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The head of one of the world’s largest developers of clean energy said investors are on the wrong side of history as they drive a historic sell-off in renewable stocks.

Shares of companies involved in wind and solar power projects and the equipment behind them have been slammed this year as high interest rates and inflation hit their profitability.

Yet Andrés Gluski, chief executive of power company AES, said investors were making a “big mistake” given the scale of the climate crisis.

“We’re having the hottest year on record . . . and yet Wall Street is giving a lot of preference to oil companies over renewable companies,” Gluski said in an interview.

“Building renewables, building low-carbon is the right side of history, and it’s a question of time when this will be borne out. Wall Street can get things very wrong in the short term,” he added.

With its headquarters in Arlington, Virginia, AES builds energy projects and is the largest seller of renewable electricity to corporations, including Amazon and Google. While it also owns coal- and natural gas-fired power plants, AES has moved to green its portfolio with plans to ditch coal by 2025 and triple its renewables capacity by 2027.

Gluski spoke amid a difficult earnings season for clean energy companies, with numerous project cancellations and delays being announced across the sector in recent weeks. Shares in AES have fallen almost 40 per cent in 2023.

The S&P Global Clean Energy index, which includes the 100 largest clean energy-related businesses, is down 31 per cent since the start of this year, compared to a less than 1 per cent decline for the fossil-heavy S&P 500 Energy index. 

Line chart of Change in value from Jan 2023 (%) showing Renewable stocks have plunged since the start of the year

Canadian battery recycler Li-Cycle recently called a pause on a project in New York as the company raised its cost estimate to up to $1bn from an original budget of $560mn. The announcement came days after Plug Power, a US hydrogen fuel cell developer, warned there was “substantial doubt” about its ability to stay afloat in the next 12 months.

Last month, Danish wind giant Ørsted pulled two wind power projects off the coast of New Jersey, citing macroeconomic pressures and snarls in the supply chain. More than half of US offshore wind contracts have been cancelled or are at risk of cancellation, estimates BloombergNEF, which calls President Joe Biden’s plan to deploy 30GW of capacity by 2030 “impossible”.

Peter Gardett, S&P Global Commodity Insights’ executive director of climate and cleantech, called the recent setbacks for renewables “the cost of growth” and said he expected the sector to pursue private markets for financing given its high upfront expenditures and long payback periods.

An AES solar farm under construction in Hawaii
Workers on an AES solar farm under construction in Hawaii © Caleb Jones/AP

“[Private equity] can take a longer view, and they can say, the market is moving in the direction of more electrification, cleaner production, lower cost renewable production,” said Gardett, who found that the private equity market for clean energy had grown more than fivefold since the US passed the Inflation Reduction Act. “You can make a sectoral bet on that in a way that can ignore some of the noise in publicly listed stock prices.”

Tightening oil markets and a new era of capital discipline have bolstered oil and gas stocks. Investors have piled back into oil and gas companies despite pressures from environmental advocates to shun the sector. A recent analysis by S&P Global Ratings found that resource companies face virtually no extra borrowing costs compared with less-polluting companies.