What Went Wrong With Renewables Stocks?

Renewables stocks have slumped this year, with the largest thematic ETF (ICLN) down near 20%. This has been a doubly bitter pill for investors, with oil stocks (XLE (NYSE:XLE)) flat and tech surging. Renewable growing pains have been broad, from solar to wind and hydrogen to lithium. This has been driven by higher interest rates, cost pressures, and high expectations.

The hope is the worst of these headwinds is nearing an end, and underlying growth momentum still building. Pockets of strength, from EV’s to solar, have given some opportunity. ‘Big oil’s’ renewables pullback offers some competition relief. Whilst high fossil fuel prices, policy momentum, and energy security concern have boosted annual renewable investment to $1.7trn and rising. 

Higher interest rates and trade distortions have slowed adoption and boosted costs for US solar stocks, from Enphase (ENPH) to SolarEdge (NASDAQ:SEDG). Whilst Europe’s offshore wind leaders from Vestas (VWS.CO) to Siemens Energy (ENR.DE) have been hit by surging material and turbine costs alongside higher financing rates and big oil competition. This has seen project cancellations and attempted rate renegotiations. Hydrogen pure-players Plug Power (NASDAQ:PLUG) to Bloom Energy (NYSE:BE) have struggled to gain scale and profitability. Whilst lithium miners, from Albemarle (NYSE:ALB) to SQM (SQM), were hit by normalizing prices and rising resource nationalism.

The rare renewables winners this year included First Solar (NASDAQ:FSLR) and Array (ARRY), helped by ‘made in USA’ support from the 2022 Inflation Reduction Act. And EV leaders, Tesla (NASDAQ:TSLA) to Li Auto (LI) and XPeng (NYSE:XPEV), have rebounded on continued strong volume growth with global EV penetration rates well under 5%. The recent step back in ‘big oil’ renewables ambition, from Shell (LON:SHEL) to BP (NYSE:BP.L), will slow overall adoption but also take some pressure off of returns. Whilst lower stock prices, with still strong growth, has improved valuations.