13 Oct 2023
Renewable energy and clean technology stocks are showing signs of resurgence after a challenging year. The clean energy sector has been grappling with rising interest rates and supply chain disruptions, but recent developments are breathing new life into these innovative industries.
Renewable Energy Struggles
The clean energy sector has experienced a challenging year, underperforming fossil fuels in the wake of higher interest rates and escalating material costs. Clean energy shares faced considerable headwinds, resulting in a 26.2% decline for the iShares Global Clean Energy ETF (NASDAQ: ICLN) in the year-to-date, compared to a 14.5% gain in the S&P 500.
The solar and wind energy benchmarks fared no better, with Invesco Solar ETF (NYSEARCA: TAN) down 31.4% YTD and First Trust Global Wind Energy ETF (NYSEARCA: FAN) falling 21.0%. Investors pulled out of renewable energy funds at a record pace in the September quarter as rising interest rates and material costs squeezed profit margins.
Renewed Optimism
However, there's hope on the horizon for clean energy. The sector has started to recover losses as treasury yields declined following global events. The iShares Global Clean Energy ETF (ICLN) recorded a 3.7% gain in the past five trading sessions, coinciding with a significant drop in the 10-Year Treasury bond yield to 4.65%.
Solar Sector Resurgence
The solar industry has faced challenges due to mounting financing costs for panel installations and persistent supply chain disruptions. Furthermore, reduced incentives for rooftop installations in California, a key market, have contributed to the sector's struggles. Clean energy projects often require substantial upfront investments, making them sensitive to interest rates.
However, recent events have provided a glimmer of hope. The French government's commitment to more than double its renewable power capacity by 2035 has contributed to a rebound in solar and alternative energy stocks.
Hydrogen Sector on the Rise
The hydrogen sector has also shown significant gains, with the Biden administration set to announce federal grants of up to $7 billion for regional hydrogen projects. These grants aim to establish 6-10 regional clean hydrogen hubs across the country, marking a critical step in advancing the hydrogen economy.
Leading gainers in the hydrogen sector include FuelCell Energy (NASDAQ: FCEL), Plug Power Inc. (NASDAQ: PLUG), Bloom Energy (NYSE: BE), and Ballard Power Systems (NASDAQ: BLDP). The infrastructure bill passed by Congress in 2021 has paved the way for these developments.
Challenges Remain
While recent developments have sparked optimism in the clean energy sector, challenges persist. High research and development costs, manufacturing expenses, and limited adoption are ongoing hurdles for clean energy and hydrogen tech companies.
However, the potential for growth and innovation in the industry remains substantial. As governments, investors, and companies continue to support and advance clean energy solutions, the path to a more sustainable future becomes increasingly promising.
Conclusion
The clean energy sector is showing resilience in the face of adversity. Recent events, including the French government's renewable energy commitment and the allocation of federal grants for regional hydrogen projects, have reignited optimism. The road ahead may be challenging, but the clean energy industry remains dedicated to driving innovation and sustainability.