Within the renewable sector, solar stocks have been on an uptrend for two years, while renewable energy stocks have outperformed fossil fuel stocks over the past ten years, including during the pandemic when the oil price crash badly bruised oil stocks.
Shares in solar power companies such as Enphase and SolarEdge, as well as the Invesco Solar ETF (TAN), have rallied and are further expected to rise in the long term, due to the bright long-term prospects for renewable energy –including solar power – in the United States and around the world, Olivier Garret, Founding Partner & CEO of RiskHedge, argues in an article in Forbes. Sure, the pandemic has created a lot of uncertainty in all industries and services because of the months-long lockdowns in every major economy. Investments and funding for renewables are expected to become harder to get in view of the economic recession caused by the coronavirus. But COVID-19 has created much more uncertainty around the oil and gas industry and stocks as it posed again the question of how long the world will take to reach peak oil demand. Or whether we have already hit peak oil, considering that the pandemic might result in lasting changes in consumer behavior and lifestyles—a notion that even the bosses of BP and Shell are not ruling out.
The pandemic is slowing renewable capacity installations, including solar power capacity in the U.S., but renewables as a whole are holding up much better than the oil and gas industry.
COVID-19 cast some uncertainty over the near-term renewables investments and capacity installations, but it has also cast a much more ominous shadow over the long-term viability of the oil and gas sector amid the energy transition and the uncertainty about whether global oil demand will ever return to the ‘normal’ levels of 100 million bpd from before the crisis.
During the pandemic, renewable energy has so far been the energy source most resilient to lockdown measures, the International Energy Agency (IEA) said in its Global Energy Review 2020 report in April.
Renewable energy demand is the only one to increase this year—by about 1 percent from 2019, in contrast to all other energy sources. Renewable electricity generation will grow by nearly 5 percent despite the supply chain and construction delays caused by the crisis, the IEA said. Despite the uncertainty over solar photovoltaic (PV) capacity growth, solar PV is set to increase the fastest of all renewable energy sources in 2020, the agency noted.
In other words, despite the near-term challenges for the renewable sector, the industry is the most resilient energy source during the pandemic.
And so are the share prices and returns of renewable energy stocks compared to fossil fuel stocks, according to a new report published by Imperial College Business School in partnership with the IEA.
The report showed that “publically-traded renewable power portfolios have posted significantly higher returns for investors and lower volatility over fossil fuels during the past 10 years and during the COVID-19 crisis,” Imperial College London said in a statement.
The report found that in the U.S., the total return of fossil fuel stocks over the past 10 years was 97.2 percent, while the total return of renewable stocks with over US$200 million market capitalization was 200.3 percent.
The U.S. pool of fossil fuel companies in the report included Exxon, Chevron, and 160 other oil and gas firms, while the renewable portfolio included First Solar, Enphase, Sunrun, SunPower, and 15 other companies.
In the past five years, the total return of fossil fuels was a negative 9.6 percent, compared to a total return of 66.7 percent for renewables stocks. From January to April 2020 alone, the total return of U.S. fossil fuel firms was a negative 40.5 percent, compared to a total return of 2.2 percent for renewables stocks and a negative 9.4 return of the S&P 500.
“Renewable Power Portfolios performance has significantly improved over the last five years and their volatility has decreased,” the authors of the report wrote. Still, renewable stocks haven’t attracted sizable investments from the biggest asset managers yet because listed renewables stocks are mostly small-cap and with low liquidity, while large asset managers and institutional investors need high-liquidity stocks to open large positions.
“A key question going forward is whether dedicated renewable power companies can achieve the scale required to absorb large volumes of capital from public markets,” the authors of the report said.
