Market Overview

Clean Energy Is Green, Regardless of Who Goes To The White House


Clean energy stocks have suddenly found momentum after languishing for years. The Invesco Solar ETF (NYSE: TAN) is up over 154% in the last six months and hitting highs not seen since 2011, while the Invesco Wilderhill Clean Energy ETF (NYSE: PBW) and VanEck Vectors Global Alternative Energy ETF (NYSE: SMOG) are up 131% and 81% in the last six months.

These stocks could stay in the green much longer if poll results show anything. According to a survey conducted by Morgan Stanley, 51% of investors believe that the forthcoming November elections would affect clean energy stocks and sustainable investment. With a week until one of the most contested elections in American's history, Joe Biden has a double-digit lead over President Donald Trump in the polls. Investors in anticipation of a blue wave are already structuring their portfolio to reflect a Biden. 

In July, Biden unveiled a comprehensive $2 trillion spending plan to tackle climate change in four years. Biden's plan hopes to get America producing 100% clean electricity by 2035 by providing incentives to the U.S. auto manufacturers to make zero-emission electric vehicles, building 1.5 million new energy-efficient homes public-housing units. This is a stark contrast to President Trump's energy approach, which has always leaned towards fossil fuels. President Trump has repeatedly called climate change a hoax and has reversed many of President Obama's climate and environmental policies. President Trump has pulled the United States out of the Paris Accord and defunded, scaled back, or eliminated over 150 clean energy programs. The Trump administration has also pushed to open public lands (to allow exploration) and slashed environmental protections.

Despite Trump's hardball approach to alternative energy, the shift may is underway, both financially and demand-wise. Clean energy stocks have been doing well this year, outperforming traditional energy stocks, which have been one of the worst performers in the market this year. Solar stocks such as First Solar (NASDAQ: FSLR) and Azure Power Global (NASDAQ: AZRE) have returned 76% and 99% this year. Sunrun Inc (NASDAQ: RUN) has returned a whopping 429% in the last six months. NextEra Energy Inc. (NYSE: NEE), a company focused on wind and solar, and other renewable energy sources, became the largest publicly traded energy company in the U.S. last week when it hit a $148 billion market cap.

Traditional energy companies have been out of sync because of the price war by Russia and Saudi Arabia, further exacerbated by the economic fallout from the coronavirus pandemic. Both factors have sapped the demand for fossil fuels this year with relief in the near term as OPEC revised its earlier forecast by 400,000 bpd. The Energy Select Sector SPDR Fund (NYSE: XLE) by 49% this year, with big wigs such as Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM), depreciating over 50%. With oil prices hovering at less than $40 per barrel, there is growing widespread skepticism on how many U.S. shale companies can survive (with shale oil accounting for 60% of U.S. gas and oil production).

According to a report from BailoutWatch, U.S. oil-and-gas companies have borrowed a record $100 billion in the corporate bond market since the Federal Reserve announced its plans to buy corporate debt for the first time to offset the shock of the pandemic. Moreso, even though there is the possibility of a spike in oil prices when the global economy fully reopens, this may be unsustainable when compared to the rapid acceleration of clean energy technologies. However, some analysts have disputed claims that a blue wave is responsible for clean energy stock's momentum.

Those in this school of thought believe that the momentum in alternative energy stock is simply a ripple effect of growing interest in alternative energy from retail and institutional investors, which many think is the future of global energy demand. Bloomberg energy states that global investment in new renewable energy for the first half of the year increased by 5%, reaching $132 billion. Renewable energy use in the U.S. comprises 17% of total energy generation, doubling between 2000 to 2018. Wind and solar energy have doubled their share of the global energy mix in the last five years as costs of renewable energy continue to plummet, making it cheaper and more affordable.

Also, the Biden Plan is not the only attempt at reversing climate change at a regional scale. In December, the European Commission announced a $2 trillion Green New Deal. China, the world's largest emitter of carbon dioxide, also announced an ambitious plan to go carbon neutral by 2060 earlier this year. This is following similar projects by the UK, India, France, Norway, Germany, and California to phase out combustible engines at predetermined timeframes. 

The promise of cleantech has long lured investors. However, years of underperformance have made investors believe that they may be flying close to the sun. The pandemic has reinforced the agitation for a clean environment. With nations and governments making commitments to cleaner energy, the sector will be a winner in the long term regardless of who occupies the White House in January. 

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.


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