It Really Could Get Even Worse for Renewables Stocks

The crash in renewable energy stocks has been extraordinary. Since the peak in 2021, the VanEck Global Clean Energy ETF [ASX:CLNE] has lost more than half its value. The iShares Global Clean Energy ETF [US:ICLN] is down by almost two thirds.

The world’s largest wind developer, Orsted, has lost 80% of its value.

Weirdly, investors have lost hundreds of billions of dollars while much the same amount was invested in actual renewables projects.

Except, of course, that the project investment boom is now imploding too. Governments and companies are falling over each other in the rush to abandon renewables projects.

Who could’ve seen it coming…?

But there’s no room for Schadenfreude in an investment newsletter. We get plenty wrong ourselves. Just not with taxpayers’ money…

The big question investors face now is simple: what if renewables stocks are oversold? Is the buying opportunity too good to ignore, even for climate sceptic investors?

Governments haven’t quite given up on their net zero dreams. At least, not officially.

Much of the renewable’s rollout is dragging on. The targets are still in place too.

A wave of wind and solar projects will soon need replacing and rebuilding just to keep the sector’s power output stable, let alone growing. That means a new source of revenue for the sector.

Just as coal stocks were oversold when the renewables hype was at its absurdist height, so too could wind and solar be worth a buy now.

It’s not like it could get any worse…is it?

Today, I’d like to warn you away from taking the plunge into renewables stocks. For a peculiar reason you won’t hear anywhere else: the Norwegian election.

That might sound a bit far-removed from the solar panels on your roof. But it’s rather directly related to the value of solar stocks listed on the market.

Voters in Norway go to the polls on 8 September. And their decision could put a nail in the coffin of renewables that’ll be tough to pry out.

At the heart of the green energy transition is the presumption that it’s always windy and sunny somewhere. We just need to be able to move the electricity from where it is being created to where it is needed.

In Europe, this is greatly complicated by the need to cross national borders. Not everyone wants to share their electricity when there isn’t enough to go around. Especially when the lack of electricity was caused by phasing out clean green nuclear power in a bizarre act of virtue signalling…

Because Europe’s grid is separated by borders, people can vote in elections for political parties that promise to pull the plug on electricity exports. Especially to countries that have fouled up their own electricity system so badly that it impacts their neighbours’ grid. Back to that in a moment.

The second complication for the Europeans is that the weather in most of Europe is highly correlated. This makes the economics of electricity storage incredibly difficult.

Batteries need to last weeks, not hours, in the event of a Dunkelflaute.

The exception to this is Norway, which has a far lower weather correlation with other parts of Europe. That’s one reason why Norway is considered so crucial. The other reason is its vast hydropower, which isn’t weather dependent.

Put the two together and you have what was supposed to be the battery of Europe.

The trouble is Norway’s hydro is weather dependent. And whether the Norwegians want to produce hydropower also impacts their water supply.

So a dry spell has a huge impact on whether the Norwegians want to release their water and power reserves for the benefit of Europe or not. Remember, everyone else wants Norway’s power at the same time. Including, shockingly, the Norwegians.

In January, the Norwegian coalition government collapsed. One of the key issues was whether the country should continue to participate in Europe’s green energy plans.

This might not seem like a controversial topic. But it is in Norway.

You see, Norway’s links to Europe’s rather messed up power grids is wreaking absolute havoc on Norway’s own grid. Just as Norway exports reliable on-demand power south, Europe exports absurd electricity prices and instability north along the same cables.

The results are awful, with power prices surging up to 20 times their usual level. ‘It’s an absolutely shit situation,’ summarised Norway’s energy minister Terje Aasland.

His party began campaigning to refuse to renew power export cable deals to Denmark. And jumped from third in the polls to first with a 9% increase.

And they’re the moderates on the issue, with other parties campaigning to renegotiate power export deals with other countries as well.

So, the issue of whether to disconnect from Europe’s electricity shambles is going to the polls. And the leading parties are keen to pull the plug.

As the Norwegians see it, the inability of central Europe to get its energy policy right is simply not their problem.

Who cares about Norway’s electricity supply?

If Europe cannot establish a stable electricity grid for its renewables, then orders for more wind and solar will dry up.

Remember, much of the continent already has enough power to send prices negative when the wind and sun combine well. Building more doesn’t help if the supply evaporates during lulls in both power sources.

Not many uses for electricity are economical when they are only run during periods of electricity oversupply. What investments would you be willing to make that only operate when the sun is shining and it’s windy in Europe…?

Of course, this doesn’t mean the renewables revolution will grind to a halt everywhere. But with Dutton set to join Trump in charge, and the Chinese curtailing renewables to make room for their vast coal power plants, the pipeline of orders is getting slim.

There may one day come a buying opportunity for renewables. But it’ll be long after the Norwegian elections force Europe to wake up and smell the gas.

You’d be far better off deploying your capital into something productive that’ll change the world for the better.

Regards,

Nick Hubble,
Editor, Strategic Intelligence Australia

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.