Green energy will be a smart contrarian trade
17/12/2024 09:15
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By George Hay
LONDON, Dec 17 (Reuters Breakingviews) - On the face of
it, 2025 is shaping up to be a stinker for renewable energy. The
planet seems ever further from restricting global warming to a
manageable 1.5 degrees Celsius level, and the election of Donald
Trump as U.S. president means that the world’s biggest economy
will visibly retreat from the collective fight against climate
change. Yet while the year ahead will be painful for some green
power players, the wider sector may yet constitute a buying
opportunity.
Given that Trump has called climate change a “hoax” and
variously claimed that offshore wind harms birds and causes
cancer, it’s tempting to fear his administration could bin Joe
Biden’s Inflation Reduction Act, which Bernstein estimates
resulted in $488 billion of U.S. clean energy investments in the
two years after its inception in August 2022. The iShares Global
Clean Energy exchange-traded fund of leading renewables groups
fell 10% in the two weeks after the U.S. election, against a
wider 2% gain for global equities. Offshore wind providers like
Denmark’s Orsted ORSTED.CO initially led the slump. Green
hydrogen players like Norway’s Nel NEL.OL , which makes
electrolysers that split water molecules to create zero carbon
hydrogen, fell over 20%.
Yet not all green stocks took a hammering. Those more
exposed to the energy infrastructure end of the U.S. market like
domestic giant NextEra Energy NEE.N , Spain’s Iberdrola
IBE.MC and Britain’s National Grid NG.L – which makes around
45% of its EBITDA in North America – were largely flat.
Germany’s RWE RWEG.DE , which bought into U.S. solar in 2022,
saw its shares rise.
This makes sense if Trump is as focused on low-cost energy
as he seems. Solar and onshore wind are cheaper than gas-fired
electricity, according to Lazard, whereas offshore wind is not.
As Republican states received 70% of clean energy investment in
the IRA’s first two years, a wholesale scrapping of the act
would also be bad politics. More likely, Trump will accelerate
permitting for new fossil fuel projects, but also for solar and
onshore wind. The reverse could happen with offshore wind
permits and green hydrogen projects, which still require
subsidies to be competitive.
Meanwhile, hyperscalers like Microsoft MSFT.O and Amazon
AMZN.O need loads more energy to train their artificial
intelligence models. This should underwrite demand both for
solar and for grid expansion. McKinsey says that the build-out
of U.S. data centres could require over 400 terawatt hours of
extra electricity by 2030 – roughly France’s entire annual
consumption.
The iShares Global Clean Energy ETF fell by nearly a quarter
from the end of 2023 to late November. Trump’s ongoing
trash-talking about green energy could yet just see him scrap
the entire IRA. But to make a contrarian bet, there needs to be
some risk.
Follow @gfhay on X
This is a Reuters Breakingviews prediction for 2025. To read
more of our predictions, click here.
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Graphic: Green stocks showed a wide dispersion post-election
https://reut.rs/4gcaZRZ
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(Editing by Neil Unmack and Oliver Taslic)
((For previous columns by the author, Reuters customers can
click on HAY/
george.hay@thomsonreuters.com))