Short-Term Headaches Won’t Stop Renewables Shift, Bloomberg Analyst Says

The shift off fossil fuels is here to stay, even as high interest rates create short-term headaches for renewable energy giants like Florida-based NextEra Energy, German wind turbine maker Siemens Energy, and Danish wind developer Ørsted A/S, a recent news analysis concludes.

“Soaring interest rates and grim headlines have hammered the stock prices of solar and wind companies recently, capping a grim couple of years when the rising costs of borrowing and materials have made capital-intensive renewable projects more expensive and less attractive to investors,” writes Bloomberg opinion columnist Mark Gongloff. “It’s a huge stumbling block for the clean energy transition when it should really be sprinting if humanity is to have any hope of limiting global warming to non-catastrophic levels.”

But even with no immediate prospect that high interest rates will ease, “renewable energy has far too much going for it to give up on it now,” Gongloff says, and “given that the stock market is a mechanism for betting on the future, renewable stocks won’t wait around for rate cuts.” Already, David Oxley, head of climate economics at Capital Economics, is predicting those assets will bounce back in 2024.

Gongloff adds that the U.S. Inflation Reduction Act is still pulling investment dollars into clean energy, despite high interest rates. The totals include more than US$100 billion for electric vehicles and batteries in North America alone, and $16.6 billion funnelled into climate technology start-ups between July and September, nearly a two-year high for quarterly investment.

New York Times finance writer Jeff Sommer points to a different risk, citing investors’ failure to respond to the International Energy Agency’s urgent call for reductions in fossil fuel extraction.

“The stock market doesn’t seem to have gotten the memo,” Sommer says. “The shares of a broad range of clean energy companies have been crushed lately,” and “rather than weaning themselves off oil, ExxonMobil and Chevron, the two biggest U.S. oil companies, are doubling down” with two recent mega-mergers.

“It’s a perplexing state of affairs,” he writes. “The evidence that carbon emissions are warming the planet is persuasive. Yet the stock market, which is supposed to be forward-looking, is treating alternative energy companies with disdain and big oil companies with respect.”

Sommer says he’s confident that markets will eventually get it right. But meanwhile, they’re doing a lot of damage. Last year, The Guardian reported last week, European, Chinese, and U.S. banks poured more than $150 billion into 425 “carbon bomb” projects that could each emit a billion tonnes of carbon dioxide equivalent (CO2e) if they go into operation, enough to exceed the remaining global carbon budget four-fold.

The news story identifies JPMorgan Chase, Citi, and the Bank of America as the top three carbon bomb funders since 2016, the year the Paris climate agreement was finalized. None of the top 10 banks on the Guardian list are Canadian.

But even with the bad news accumulating, Bloomberg’s Mark Gongloff expects clean energy development to bounce back, with Ørsted and other offshore wind developers still working on projects in different parts of the world and governments stepping up to help companies cope with inflation.

“As an increasingly chaotic climate wreaks havoc around the world, governments will and should keep finding ways to raise the price of the fossil fuels that are spewing planet-warming gases into the atmosphere while luring capital to alternatives,” he writes. “As pricey and inflationary as the energy transition might be in the near term, the cost of not transitioning could be twice as high.” And in the end, “only one of these choices will reward investors in the long run.”