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Transition denied

6 May 2021 By George Hay, Christopher Thompson

Lucrative stock market seedlings from firms focused on the transition to clean energy are undergoing a shift of their own. As 2021 dawned, every corporate boss with a business even vaguely geared towards renewables was mainlining investment banker presentations on how to cash in. That party has ended.

For Italian oil group Eni or Spanish rival Repsol, the appeal was straightforward. Between May 2020 and early January, the iShares Global Clean Energy exchange-traded fund of green stocks tripled in value. All bosses needed to do was spin off their nascent wind and solar assets, list a chunk, and raise billions of euros. Planned stock offerings by smaller Spanish renewables players like Opdenergy, Capital Energy and Ecoener meant owners could both cash out and secure funds for more solar panels and wind turbines.

It hasn’t panned out. Opdenergy pulled its debut this week after Ecoener shares slumped 15% on their first day of trading. Capital Energy bowed out in April. Oil major spinoffs are still on, but not imminent. Over the last three months, large players like Danish wind developer Orsted have fallen over 20%, and the iShares Global Clean Energy ETF is off nearly a third.

Bankers call this a gradual release of air from what had become a green bubble. Surging oil prices meant the rate of inflows into environmental-themed ETFs eased. Stiff prices paid by BP at a UK wind auction in February made investors fear lower sector returns. All of which cast doubt on whether Orsted and others should trade at over 50 times expected earnings.

Given that Europe and the United States are making promises that could see wind and solar capacity rising 20-fold by 2050, green stocks warrant a premium, and turbine maker Vestas on Wednesday maintained full-year revenue and profitability guidance. But investors are checking under IPO candidate bonnets. That’s bad for relative minnows like Opdenergy, which only has 0.6 gigawatts of renewable energy capacity, and whose own prospectus warns that 42% of its pipeline has only a 30% chance of being completed.

But it may not be all bad for Spain’s $9 billion Acciona, which already has 10.7 gigawatts of capacity and wants to nearly double it by 2025. To the extent that renewable stock valuations now look merely pricey rather than drastically excessive, it’s probably long-term good for green investing too.


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