In a warming world, clean energy stocks fall while oil companies prosper

THE NEW YORK TIMES – Heat, drought, floods and famine. The evidence of climate change are all around us.

For the planet to avoid even more serious consequences of global warming, according to the International Energy Agency, the world’s largest authority on the subject, the consumption of oil, coal and natural gas must be reduced much more quickly. Clean energy sources, such as solar It is windhave to expand at a much faster rate.

But the financial market appears not to have gotten the memo. On the contrary, the actions of a wide range of clean energy companies have been crushed lately, in a defeat that encompasses virtually all alternative energy sectors, including solar, wind and geothermal.

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At the same time, instead of freeing themselves from oil, Exxon Mobil and Chevronthe two largest oil companies in the US, are doubling their investments and have announced acquisitions that will increase their reserves.

Exxon plans to buy Pioneer Natural Resources, a major shale drilling company, for $59.5 billion. Chevron plans to acquire Hess, a large integrated oil company, for US$53 billion. These are huge bets on oil for the coming years.

Benjamin Graham, a great investor and professor at Columbia University, once said: “In the short term, the market is a voting machine, but in the long term, it is a weighing machine.” This means the market eventually gets it right, but in the short term it is prone to enthusiasm, hasty judgments and short-sighted thinking. This appears to be what is happening now.

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Hundreds of billions are, in fact, being invested in renewable energy projects, even though the stock market is not favoring it at the moment. You returns are low. The iShares Global Clean Energy ETF, an exchange-traded fund that tracks the entire sector, is down more than 30% this year. Even worse, since the start of 2021, it has lost more than 50%.

Other sectors are also being punished. The Invesco Solar ETF is down more than 40% this year and nearly 60% since January 1, 2021. The First Trust Global Wind Energy ETF has lost about 20% this year and about 40% since January 1, 2021.

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Rising interest rates have raised costs and tempered consumer enthusiasm in many countries, lowering stock valuations of fast-growing companies that aren’t generating big profits. Renewable energy companies have been hit hard.

SolarEdge, which provides equipment needed to convert energy from solar panels into energy that can be transmitted through electrical grids, warned on October 17 that demand for its products was declining. The market reacted harshly. The company’s shares, based in Israel, fell almost 30% in a single day. Other solar companies followed suit. Enphase Energy, a rival Fremont, Calif., company, has lost nearly 40% since then.

Wind energy companies have not been spared either. Shares in Danish wind turbine company Orsted fell nearly 26% last Wednesday after it announced it might have to reduce the value of its wind projects by up to US$5.6 billion offshore in the United States.

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One of the Orsted group’s projects, South Fork Wind – a set of turbines being installed in Montauk Point – is expected to begin sending electricity to Long Island before the end of the year. But company canceled two projectsknown as Ocean Wind 1 and 2, which were supposed to supply New Jersey with green energy, and some of its projects for New York and Connecticut have also run into problems.

Bet on fossil fuels

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Big oil companies’ profits and revenues have weakened since last year, when energy prices soared following Russia’s invasion of Ukraine.

For the entire S&P 500, earnings per share in the third quarter grew just 2.7% from a year earlier, according to estimates from John Butters, senior earnings analyst at FactSet. Excluding large energy companies, however, this total increases to 8.4%. This is because earnings per share of major fossil fuel energy companies have declined by 38.1%, more than any other sector.

Oil prices are volatile, and their trajectory in the coming years is far from certain. But Exxon and Chevron are betting their future on oil. Exxon’s acquisition of Pioneer would be its largest since it bought Mobil in 1999. And Chevron will deepen its commitment to oil by acquiring Hess.

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Even though I know this isn’t the case, I can’t help but think of Hess as “the green company”. That’s just because I’m an old New York Jets fan. Hess shares a green and white history with the Jets. Leon Hess founded the company, owned the team and liked the color green. But Hess’s product line is petroleum-based.

But it does not matter. Oil has been good for Hess shareholders and shareholders of the other three companies. Over the past three years, Exxon has increased its earnings by about 275%, including dividends; Chevron, 135%; Pioneer, 260%; and Hess, an impressive 310%. The S&P 500 returned about 32%.

Furthermore, there is a risk factor. As the World Bank warned last Monday, if the war between Israel and Hamas worsens, the conflict in the Middle East could easily trigger a sharp rise in oil prices. An escalation of the Russian-Ukrainian war could also send oil prices soaring. The same can be said of a series of potential military or political conflicts.

Many alternative energy companies are still being evaluated, no matter how much the world needs their products. Oil companies, on the other hand, are valued for their ability to make money.

But if you’re looking for a guide to the future, don’t count on the stock market.