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Thanks to everyone who attended this week’s Moral Money Summit in New York. Whether it is London, Singapore or New York, I am always impressed by how much I learn at these events. And they do influence our coverage here in the newsletter. So let’s keep the conversations going.
Now in today’s newsletter, winter is around the corner for us in the northern hemisphere. But renewable energy companies are already in a deep freeze. The high interest rates around the world have slowed borrowing at all types of companies. But renewable energy businesses need to borrow to fund big projects that are crucial to their growth. As I report below, governments are racing to stimulate the green transition, but renewable companies are under threat from central banks for the foreseeable future.
And today, Andrew Edgecliffe-Johnson (one of our favourite conference moderators this week) gives us a flavour of one of the best panels from the conference: a debate between two of the more controversial names in ESG investing.
Please read on. — Patrick Temple-West
Interest rates put solar companies at risk of ‘capital crunch’
The sunny days for investors in renewable energy companies have turned to a cold winter as high borrowing rates have put share prices in a deep freeze.
The S&P Global Clean Energy index has dropped 38 per cent from a recent peak in January 2023 to its lowest level since July 2020 and is down 30 per cent over the past 12 months. Large constituents in the index, such as Danish groups Vestas, the wind turbine maker, and Ørsted, the renewables-focused utility, are down 29 per cent and 27 per cent respectively so far this year.
In the US, SunPower, a solar systems provider, has seen its share price plummet 76 per cent this year. It said on Tuesday it would need to restate its financial numbers after it found an error in its accounting. Shares in Sunnova, a rooftop solar installer, have sunk 54 per cent year to date and are trading at lows not seen since the early days of the Covid-19 pandemic in 2020.
The recent share price slump presents a stark contrast to where some solar companies were this summer. Shares of Sunnova and rival Sunrun jumped in July after the US Customs and Border Protection agency eased restrictions on panel imports from China. Solar panels had been held up by a law that screened products over Uyghur forced labour concerns.
But the chief problem for solar and other renewable energy companies is interest rates, which investors judge may fall from current high levels more slowly than previously expected.
If rates hold at these levels, smaller renewable energy companies “could face working capital crunches and begin to struggle”, Goldman Sachs said in a report this week.
As investors started looking ahead to 2024, they would consider “first and foremost, what will be the trajectory of interest rates, on both sides of the Atlantic?”, said Pavel Molchanov, an analyst who covers cleantech companies at Raymond James. Renewable power companies and renewable natural gas developers were particularly sensitive to interest rates, he said, because although they might be generating positive cash flows, they were capital-intensive businesses.
Next year, politics could also pose problems for renewable energy investors. Seven G20 countries were likely to have elections in 2024, including the US, Molchanov said. “The US stands out as the largest CO₂ emitter on this list, as well as a country with intense party-line polarisation around climate policy.”
“Republican control of the White House and Congress would lead to some backsliding” for government subsidies to renewables companies, he added. “Democratic control would open the door to additional support.”
As in many young industries, stock market bubbles and busts are not uncommon in clean energy. But investors are concerned how long the current plunge in sentiment in the sector will last. (Patrick Temple-West)
How opposite sides of the ESG debate found common ground
When you put the president and co-founder of Vivek Ramaswamy’s ESG-bashing investment group Strive on stage with sustainable investing heretic Tariq Fancy, the director of ESG engagement at credit firm DSC Meridian Capital, and an L Catterton partner focused on impact investing you might expect some fur to fly. Not least when the title of the panel is “GOP vs ESG”.
But at this week’s Moral Money Summit, what was most striking was how much common ground the panellists on opposite sides of the increasingly politicised debate managed to find. “A lot of the ingredients [in ESG] are useful,” Fancy told the audience: “The way forward for ESG is to scrap the acronym and to focus on where there’s actually value that’s depoliticised.” Things like cutting waste from supply chains are margin-enhancing and apolitical, he argued, and “Republicans like making money too.”
Anson Frericks, the Strive president who has been firmly on the shareholder side of the stakeholder capitalism debate, agreed with Fancy and DSC’s Paula Luff that a focus on value creation was the way through the political thicket ESG finds itself in. “If you actually talk about efficiency, you talk about margin enhancements, you talk about how we’re using less resources, by definition that’s going to actually increase your bottom line,” he said. “And I think that’s what we need to start talking more of as it relates to ESG”.
You can catch up on this and any other sessions you missed here. (Andrew Edgecliffe-Johnson)
Japan’s carmakers were slow to jump on the electric vehicle wave. Can solid-state battery technology offer a path back to leadership, asks Leo Lewis in Tokyo.