Just because oil prices collapse, as they did in 2014 (and take their stock prices with them), solar, wind, and geothermal firms don’t have to automatically follow suit.
But they do. Weird, how that happens, because as Rewired Senior Editor Julia Pyper recently reported: “(Last year’s) drop in oil prices had no impact on electricity prices. But it was (nonetheless) a rough year for publicly traded renewable energy companies.”
By the end of last year, for example, the:
- Guggenheim Solar ETS (a solar energy global index) dipped 30 percent;
- Stocks of large solar companies like SunEdison, Solar City, and SunPower fell between 20 and 40 percent; and the
- WilderHill Clean Energy Index, drooped 32 percent.
Why, Pyper wondered, do renewable technology stocks for solar, wind, battery storage, efficiency, etc, perform so poorly when oil prices drop, despite market fundamentals and global investment clean energy projects reaching record highs?
We wonder about that too. Especially when Bloomberg New Energy Finance reports global investments in clean tech total $410 billion.
Why do falling oil prices trigger declines in solar/renewable stocks?
Old thinking about electricity. It’s a widely-held and deeply entrenched belief that oil and renewables play an equal role in electricity production. In reality, the two rarely intersect – especially not in the United States, where oil accounts for only a one percent drop in the electricity generation bucket. In the U.S., oil is primarily a transportation fuel. Hydro, wind, geothermal, biomass, and even individual residential and business solar installations account for 14 percent of electricity production in the United States.
If oil and solar, or oil and wind or oil and…DID compete, then there would be a problem. But they do not. Renewables compete with coal and natural gas. So when oil prices decline, it is this outdated understanding of the two sectors and how energy markets work that triggers an automatic, lemming-like drop in solar, hydro, wind, and other renewable energy stocks.
When oil prices fall down, investors in renewables should stand up
At T-REX, we think “contrary” thinking creates a perfect storm for investors in renewables. Key, of course, is to “look before leaping” and access data that looks beyond today’s price for a barrel of oil — information drawn from sufficiently large, accessible datasets to permit robust analyses of product and project performance for accurate performance modeling.
Authored by the T-REX team