Russian invasion speeds up global clean energy plans

Lawmakers are taking steps to reduce Russian gas dependence with renewables being one solution — propelling wind and solar stocks to rise on the urgency…

Accelerating a transition to green energy

Europe’s oil & gas supply — over a third of which is from Russia — is at risk of a major disruption. As a preemptive measure, countries are turning to renewable energy:

• Execs of large turbine makers have asked lawmakers to speed up permits for new wind farms.
• Germany proposed legislation to triple the yearly addition of wind and solar energy — with the aim of generating all electricity from renewables by 2035.

In 2021, clean energy investments reached $755B — up 27% from the previous year. But according to estimates by BNEF, that number needs to triple for us to reach net-zero carbon emission by 2050. Despite the increased spending, the solar sector is down over 40% and the wind sector is down over 20% since Jan 2021.

The culprit to clean energy’s underperformance…

Before the pandemic, large turbine maker profit margins were already falling — with prospects looking even worse in the current market:

• Rising commodity prices are raising material costs for wind turbines and solar panels.
• Disrupted supply chains are raising shipping costs — with the size of wind turbines making it even more difficult and expensive to ship.

Last month, Bloomberg reported wind turbine prices moving up for the first time ever — after declining 47% in the past decade — with solar seeing similar moves.

• Steel — which makes up ~85% of wind turbines — has nearly doubled in price in the past two years.
• Coal prices rising led to a 300% jump in Chinese polysilicon prices — a main component of solar panels — in the last quarter of 2021.

Investors: The problems don’t stop there…

Per Goehring & Rozencwajg Associates, two factors caused 50-70% of lower renewable costs in the past decade: falling interest rates and energy costs.

• Energy costs are a large contributor to wind turbine and solar panel manufacturing costs.
• Interest rates are a big factor in funding big projects.

But now, these are both rising — adding extra pressure on clean energy costs. Solar costs are also expected to rise from 7c to 20c per kwh and wind from 4.5c to 6c — wiping out a decade of cost savings.

Clean energy hasn’t been the best investment historically — its profitability being a concern — and 2022 is unlikely to be the year this changes.