Green Energy Stocks Fall to Five-year Low as Support Wanes

Green energy stocks have fallen back to levels last seen five years ago, as uncertainty over political support for the clean energy transition away from fossil fuels has depressed the market.

The S&P Global Clean Energy Transition Index, an important barometer that tracks the performance of big clean energy companies, has dropped 16 per cent over the past 12 months.

Some investors believed shares would start to recover late last year as interest rates levelled off or fell and electricity prices climbed, the Financial Times reported.

But US President Donald Trump’s decision to freeze Inflation Reduction Act funding for green projects and withdraw the country from the Paris climate agreement have contributed to negative sentiment. Support for measures to cut fossil fuels is also under pressure in some European markets.

Head of Sustainable Equity at global investment manager Ninety One, Deirdre Cooper, said pessimism hanging over the decarbonisation sector was “exceptional” and mismatched with underlying company performance.

“I have never seen such bearishness in terms of the valuation for companies with structural growth . . . The market is assuming no growth for decarbonisation,” Cooper said.

“In general, underperformance was in part driven by ongoing challenges such as the interest rate and inflationary environment, meaning higher project costs and policy uncertainty impacting the clean energy sector,” added analysts at S&P Dow Jones Indices.

After peaking in early 2021, the S&P Global Clean Energy Index started to fall steadily as interest rates rose, with clean energy projects particularly vulnerable to higher borrowing costs due to high upfront costs.