Renewable energy stocks hit hard by higher interest rates

The S&P global clean energy index, which is made up of 100 of the biggest companies in solar, wind power and other renewables-related businesses, has dropped 20.2 per cent over the past two months.“There’s a dark cloud hanging over green stocks,” said Martin Frandsen, a portfolio manager at Principal Asset Management.The decline comes despite tens of billions of dollars in tax credits, subsidies and loans being offered by governments to green energy companies in North America and Europe.

“Tighter monetary policy and higher interest rates obviously affect the financing needed to grow distributions” to shareholders at 12 per cent, NextEra chief executive John Ketchum said. Analysts at UBS Group AG estimate that sensitivity to higher interest rates could cost Ørsted between US$709 million and US$1.42 billion.Some traders argue that renewable groups’ business models are poorly suited to a high inflation, high interest rate world.

“The contracts signed for offshore will be heavily loss-making for a long time until the different governments realize that they need to give $80-$100 per MWh and not $30-$40,” he added.

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