Biden Bump: Renewables Riding Optimism for Biden Win

October 12, 2020

Wall Street Journal:

Alternative-energy investments are leaving their traditional peers in the dust.

The First Trust Nasdaq Clean Edge Green Energy Index Fund is trading at a record high. The iShares Global Clean Energy GCEI 2.70% Exchange-Traded Fund has surged to its highest level since 2010, and the Invesco Solar ETF TAN -4.24% is at its highest point since 2011.

All three funds, which languished for years before taking off in 2020, have surged more than 80% this year, partly because investors are betting they stand to benefit from presidential candidate Joe Biden’s green-energy proposals.

Mr. Biden has outlined a $2 trillion plan to fight climate change and has pledged to put the U.S. on a path to a 100% clean-energy economy by 2050. The funds’ gains have accelerated in recent weeks as the former vice president’s standing in the polls has improved.

Traditional energy companies, meanwhile, continue to struggle with the economic fallout from the coronavirus pandemic, which has sapped demand for fossil fuels. The S&P 500’s energy sector is down 49% this year, by far the worst performer of the index’s 11 groups.

“What’s happening in the energy market is a reflection of a long-term shift,” said Andrew Lee, head of sustainable and impact investing at UBS Global Wealth Management.

The fate of energy companies is closely tied to oil prices, which have tumbled 34% this year and more than 70% from their highs in 2008. That is partly due to a supply glut that has coincided with a historic drop in demand.

Renewable energy use, on the other hand, in the U.S. doubled from 2000 to 2018, when it comprised about 17% of total energy generation, according to the Center for Climate and Energy Solutions.

One result of that trend: NextEra Energy Inc., a utility focused on wind and solar and other renewable energy sources, last week became the largest publicly traded energy company in the U.S., with a $148 billion market capitalization.

That pushed it above the $147 billion market cap of Exxon Mobil Corp. , a company whose roots trace back to John D. Rockefeller’s Standard Oil monopoly. As recently as 2013, Exxon was the largest U.S. company with a market value above $415 billion. Its fortunes changed as it doubled down on oil and gas production, even as rivals pivoted toward renewable energy.

Mr. Lee said the changing tide illustrates the interest from both retail and institutional investors in alternative energy. Global investment in new renewable energy totaled $132 billion in the first half of 2020, according to Bloomberg New Energy Finance, up 5% from a year earlier.

In the U.S., private-equity firms like Altus Power America and Scale Microgrid Solutions are committing hundreds of millions to alternative-energy projects. Investment giantBlackstone Group, which raised a $4.5 billion fund in 2019 for energy projects, has made renewables a key focus.

The trend toward alternative energy should endure no matter who wins the White House, said Mizuho analyst Anthony Crowdell.

For one thing, the infrastructure costs for renewables like wind and solar have come down significantly in the past years, he said, adding companies like NextEra and electric-power producer Entergy Corp. are particularly well positioned. NextEra shares are up 25% this year, while Entergy has dropped 12%.

As for policy, he noted that states set their own energy policies that won’t be affected by which party controls Washington, and the tide is moving toward renewables in many states.

“That is what is clearly winning in the marketplace right now,” Mr. Crowdell said.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: