Over the past decade, the green and socially-responsible investments, aka ESG (Environmental, Social, and Governance) investing, has emerged as one of the biggest investment megatrends in modern times. For years, trillions of dollars in new global funds flowed into the market each year, with UBS predicting that carbon-reducing tech would hit $60 trillion of investment by 2040.U.S.
Unfortunately, the ESG boom now appears to be languishing in investment purgatory. After peaking at $17.1 trillion in 2020, ESG assets in the United States dropped sharply to just $8.4 trillion in 2022, and the bleeding continues.
In the current year, no less than four ESG funds have been liquidated: SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND), SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG), SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX) and the Invesco US Large Cap Core ESG ETF (IVLC). In the first five months of the year, seven popular ESG focused funds have cumulatively recorded outflows to the tune of $8.35B.
Not surprisingly, clean energy, particularly solar, stocks are getting hammered as falling prices compress margins and factory expansions raise fears of overcapacity: last week, the Invesco Solar ETF (TAN) lost more than 5%; SolarEdge Technologies (SEDG)-11.6%, Hannon Armstrong (HASI) -9.4%, Sunrun (RUN) -7.1%, Sunworks (SUNW) -11.4%, Daqo New Energy (DQ) -10.2%, JinkoSolar (JKS) -8.2%, Canadian Solar (CSIQ)-6%, SunPower (SPWR) -5.4%.
TAN’s wind power peer, First Trust Global Wind Energy ETF (FAN,) has lost 1.4% YTD while iShares Global Clean Energy ETF (ICLN), a catch-all bet on clean energy, is down 8.8% YTD.
Solar Investments Beat Oil For The First Time
But it’s not all doom and gloom for the clean energy sector. Last month, the International Energy Association reported that the volume of capital investment flowing into the solar sector is poised to overtake the amount of investment going into oil production for the first time ever in the current year.
The amount of capital investment flowing into the solar sector is poised to overtake the amount of investment going into oil production for the first time ever in 2023, the International Energy Association has reported.
According to Fatih Birol, the IEA’s executive director, solar investments are expected to attract over $1 billion a day in 2023 with over $1.7 trillion slated to flow clean energy technologies such as EVs, renewables and storage. Overall, global investment in energy is projected to hit ~$2.8 trillion in the current year.
Speaking to CNBC’s Arabile Gumede, Birol said there was a “growing gap between the investment in fossil energy and investment [in] clean energy. Clean energy is moving fast--faster than many people realize. This is clear in the investment trends, where clean technologies are pulling away from fossil fuels. For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy.”
Since the energy crisis hit two years ago, many of the world’s governments have doubled down on renewable energy since they view the sector as an ideal way to not only decarbonize but also achieve energy security. Further, several oil producing hubs including Saudi Arabia and UAE are investing heavily in renewable energy as they try to diversify their economies.
Global energy investment in clean energy and in fossil fuels, 2015-2023e
Source: IEA
Cheaper than oil and gas
Another big reason why the clean energy sector is growing fast is due to the fact that after many decades, renewable energy is finally competitive with fossil fuels in electricity generation.
Last year, Energy Intelligence’s senior reporter Philippe Roos analyzed the cost of generating electricity, also known as levelized cost of energy (LCOE), of conventional and renewable forms of electricity generation in five regions: the U.S., Western Europe, Japan, the Mideast and developing Asia. The data, which also include break-even prices for oil, gas and coal in the Mideast and developing Asia, was based on Energy Intelligence’s proprietary LCOE model.
The EI study revealed that renewables had overtaken gas permanently on cost-effectiveness, with the race for lowest cost remaining mostly between solar photovoltaic (PV) and onshore wind. This trend rings true even in Japan, where the scarcity of real estate handicaps land-intensive renewables, onshore wind beats coal and PV displaces gas.
| REGIONAL NEWBUILD POWER GENERATION COSTS | |||||
| ($/MWh) | United States | Europe | Japan | Dvlpg. Asia | Middle East |
| Large Solar PV | 36.6 | 69.6 | 116.6 | 36.6 | 32.3 |
| Onshore Wind | 40.9 | 54.1 | 83.3 | 46.9 | 60.7 |
| Gas CCGT | 52.4 | 200.5 | 183.8 | 169.8 | 167.5 |
| Large Hydro | 57.9 | 75.7 | 78.0 | 46.6 | 92.5 |
| Coal | 73.2 | 182.3 | 94.2 | 64.6 | 123.8 |
| Geothermal | 84.8 | 84.8 | 126.9 | 38.0 | 163.0 |
| Gas OCGT | 94.7 | 316.9 | 284.4 | 272.0 | 267.1 |
| Offshore Wind | 95.1 | 191.9 | 191.9 | 109.8 | 101.7 |
| Nuclear | 104.1 | 104.1 | 118.4 | 57.8 | 86.6 |
| Solar CSP | 115.6 | 176.0 | NA | 187.8 | 114.8 |
| Biomass | 131.8 | 131.8 | 131.9 | 107.6 | 125.4 |
| Coal with CCS | 142.1 | 211.0 | 192.4 | 134.5 | 225.5 |
| Wave-Tidal | 274.4 | 274.4 | 268.5 | 260.2 | 260.0 |
Legend:
CCGT: combined-cycle gas turbines
OCGT: open-cycle gas-turbine
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CSP: concentrated solar power
According to the LCOE report, “wind and PV generation costs remain lower than fossil fuel alternatives, especially with current high gas and coal prices”, and with supply chain issues troubling both sectors equally, renewable technologies are still the cheapest.
A possible exception to this trend is natural gas since gas prices have fallen so dramatically over the past year.
After hitting multi-decade highs shortly after Russia invaded Ukraine, natural gas prices in Europe have declined sharply. Prices have now crashed 90% since the August 2022 record-high of over $322 (300 euros) per MWh with weak industrial demand and high inventories for this time of the year the key reasons.
In contrast, oil and coal prices remain well above their 5-year averages. With OPEC+ willing to go to great lengths to keep prices high and U.S. shale drillers unwilling or unable to rapidly ramp-up production, oil markets are likely to remain relatively tight at least in the medium term.
By Alex Kimani for Oilprice.com
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