Why the Shine Has Come Off Clean-Energy Stocks

Rising interest rates weigh on the sector, including iShares clean-energy ETF

By Anna Hirtenstein of The WSJ. Excerpts:

"Clean-energy stocks have fallen out of favor, with pressures created by rising interest rates outweighing supportive government policies.  

The iShares Global Clean Energy ETF closed Wednesday at the lowest level since July 2020. The exchange-traded fund invests in renewable-energy companies and utilities in line with a benchmark compiled by S&P Dow Jones Indices, including

First Solar FSLR -3.26%decrease; red down pointing triangle

and

Plug Power PLUG -4.28%decrease; red down pointing triangle

. It has plunged 33% this year.  

Some stocks have fallen even harder. U.S.-listed

Enphase Energy

has shed 64% in 2023, while competitor

SolarEdge Technologies

has sunk 71%. Excluding stocks that have been ejected from the S&P 500, SolarEdge ranks as the index’s worst performer this year.

Supply-chain problems and waning demand have added to the challenges created by higher borrowing costs. The result: a stock-market selloff despite commitments by the U.S. and other large economies to foster sustainable power generation.

“The policy backdrop is very supportive. But there are headwinds. Clean tech is a very interest-rate-sensitive sector,” said Simon Webber, a global equities portfolio manager at

Schroders

"

 

"The Biden administration’s Inflation Reduction Act of 2022 allocates close to $400 billion to clean-energy development through direct funding and tax credits. This program has attracted more than $120 billion in project proposals, according to ING."

 

"The Federal Reserve has lifted its key interest rate to a 22-year high. In turn, market-based interest rates such as government bond yields—which help set borrowing costs across the economy—have surged. The 10-year Treasury yield hit 5% Monday. 

Renewables projects typically need a lot of upfront funding to buy equipment such as solar panels and wind turbines, which is then repaid over time by electricity sales. As much as 80% of such projects are financed by debt, according to a 2020 U.S. government report. Pricier loans eat into projects’ expected returns, making it less attractive to embark on new developments."