You may never have heard of Orsted, Enel, NextEra or First Solar. But they have emerged as hot companies since beginning of this year as investment in renewable energy is booming.
For example, shares of the Danish company Orsted, the world’s biggest offshore wind developer raised around 80% in 2020. And green energy companies have outperformed their oil and gas counterparts.
Stock market is a one indicator of an industry and it shows that people expect that renewable energy demand will increase in the coming years as we are witnessing currently around the globe.
Globally, clean energy investment is expected to account for half of total investment in the entire energy sector in 2020. After years of relatively unpredictable growth, renewables are getting more investment than ever and it has to do with a pandemic, an unprecedented political push to reduce carbon emissions and the falling cost of green energy.
The coronavirus crisis has shifted investment away from fossil fuels. Oil prices saw a historic drop in the spring when global lockdown snapped demand for oil and gas as people stopped driving and flying.
Looking at multiple indicators, it shows that renewables are resilient to this crisis. The whole energy sector declined by 40% in terms of equity shares. This includes oil and gas companies using those major utilities and at the same time we saw that wind and solar companies shares doubled or more on an average basis.
In the wake of the industry-wide slump, big oil firms like BP and Total have been making more commitments to green energy. Many analysts agree that while demand for oil may see a rebound in 2021, it’s expected to wane in the coming years.
Meanwhile, demand for renewable energy is forecast to grow with wider adoption of electric vehicles and as countries around the world are investing big to cut carbon emissions.
In addition, the election of Joe Biden gives the industry a boost. In mid-2020, he said, ”when I think about climate change, the word I think of is jobs. We can put million of Americans to work modernizing water, transportation and energy infrastructure to withstand the impacts of extreme weather. When we think about renewable energy, we see domestic manufacturers and workers racing to lead the global market.” During his campaign, Biden outlined a $2 trillion dollar plan to fight climate change and put the United States on a path to a 100% clean energy economy by 2050.
All of this on top of his pledge to rejoin the Paris Climate Accord. With the United States rejoining, it would have a significant impact on clean energy investing and green investing in general because it would likely spur government regulation all around the world and likely private investment to build up these projects and fulfill these Paris Agreement promises.
Whether this lasts in the eye of investors will largely come down to the extent to which Joe Biden can deliver on these promises. Just before Biden was elected, NextEra energy, the US’s largest renewable energy company, briefly topped the market valuation of Exxon Mobile, a significant moment for renewables producers.
Other global power have also recently double down on clean energy with China, the world’s biggest polluter, even pledging to go carbon neutral by 2060 which is the biggest climate commitment made by any nation.
The European Union has tied Coronavirus stimulus money to green energy plans and pledged around a third of its 1.8 trillion euro recovery fund to climate initiatives while investing specifically in wind and solar and batteries. Government commitments have boosted shares of European utility companies like Enel and Iberdrola, two global builders of green energy projects.
When you include these big economies together, you start to see a force behind the clean energy transitions. These are long-term targets but it gives a signal to investors that we will get there.
As investment grows and technology advances, the price of clean energy is dropping. Since 2010, the cost of solar power is down 82%. An estimated 90% of new electricity generated in 2020 comes from renewables which are projected to be the world’s main energy source by 2050.
We are witnessing this general trend whereby in most countries in the world, solar and wind can offer cheaper prices than fossil fuel alternatives for new projects. The most difficult thing is to raise the initial investment which is very high compared to other technologies but to operate the plant, the cost is very low as wind and solar is free.