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Hedge funds are profiting after a series of well-timed bets against wind energy stocks, with some wagering there is further pain to come for the troubled sector.
Marshall Wace and quantitative trading firm Qube Research & Technologies are among those to have made millions of pounds in profits from sharp falls this year in the share prices of wind industry stocks such as Siemens Energy and Ørsted.
The short bets reflect a broader loss of enthusiasm for green energy stocks, despite huge tax credits and subsidies offered by governments to renewables companies in the US and Europe.
Wind companies generally agree long-term contracts that fix the price at which they sell energy. However, high inflation has pushed up their costs, while high interest rates have made it more expensive to raise money for their often-expensive new projects.
The S&P Global Clean Energy index, which is made up of 100 of the biggest renewables stocks, soared in the early stages of the coronavirus pandemic to hit a peak in early 2021. But it fell sharply later that year and, after losing further ground in 2022, has dropped another 35 per cent this year.
There was a “very high correlation” between interest rates and the performance of the index, said James Smith, manager of the Premier Miton Global Renewables Trust, adding that problems at individual companies were also weighing on the sector.
“Interest rates maybe accounts for 75 per cent of it, and the rest is what is perceived to be bad news,” he added.
Short sellers have been increasing their bets against green energy stocks for some time, amid growing expectations that higher borrowing costs would start to cause problems in the sector.
They have been vindicated in recent months. Ørsted, the world’s largest offshore wind developer, this month said it was abandoning two projects it had been developing off the coast of New Jersey due to a surge in costs for financing and supplies, sending the shares down 26 per cent on the day.
Rating agency S&P put the company’s long-term rating on credit watch negative, and on Tuesday Ørsted said it had overhauled its top management.
Its shares are now down more than 50 per cent this year, giving it a market cap of DKr122bn ($18bn), roughly a fifth of its value in early 2021 at the height of a push into green stocks.
The proportion of the company’s shares being shorted started climbing around March this year and reached a high of 1.64 per cent on November 3, according to data from S&P. None of the positions have reached the threshold for individual disclosure.
Shares in German manufacturer Siemens Energy, meanwhile, have fallen about 56 per cent since late June after a string of disappointing news stemming from technical problems with wind turbines produced by its subsidiary Siemens Gamesa. This included dropping 35 per cent on October 26 as the company said it was in talks with the German government about financial support to help shore up its balance sheet.
The shares rose 2 per cent on Tuesday after the German government said it agreed to provide €7.5bn of state guarantees to the company as part of a €15bn rescue package.
Short sellers have also targeted Danish wind turbine maker Vestas Wind Systems, whose shares are down 17 per cent this year, although they climbed last week after it confirmed it expected to be profitable this year.
In a sign some traders do not think the worst is over, almost 14 per cent of Siemens Energy’s stock is now being shorted, up from 8 per cent at the start of the year, as is about 1 per cent of Ørsted’s stock as of last week.
However, Renaud Saleur, a former trader at Soros Fund Management who now heads Anaconda Invest, said he had covered his short positions in Siemens Energy and Ørsted in early November and now owns Ørsted shares.
“We like to think all the bad news is now known,” he said. Governments will need to adjust the terms they offer wind developers to get projects off the ground, he added, while it “seems long-term [interest] rates . . . have peaked”.
Marshall Wace declined to comment. Qube did not respond to a request for comment.