The Renewable Energy Paradox: Investment vs. Returns

Heavy Investment

The call to invest in clean energy has been growing for years. It finally reached a tipping point when President Joe Biden signed the Inflation Reduction Act in 2022. This legislation helped spark billions in clean energy investment, including $110 billion for clean energy manufacturing.

Despite this surge in investment, clean energy has been one of the worst-performing sectors in the market.

Trailing Behind

The S&P Global (SPGI) Clean Energy ETF and the iShares Global Clean Energy ETF — two funds that track clean energy stocks — are down more than 30% since January. The S&P 500 is up more than 14% over the same period.

Investments and supportive policies for these new projects are flowing in. So why aren’t returns?

3 Prohibiting Factors

There are three primary reasons clean energy stocks have underperformed:

1.    Interest rates. The Federal Reserve has dramatically raised rates over the past few years. This hurts many clean energy companies, which often carry substantial debt.

2.    Bureaucratic hurdles. The permitting process for clean energy projects can often be slow and drawn out.

3.    Poor timing. Over the past few years, many clean energy projects have gotten sidetracked by high inflation and pandemic-pressured supply chains.

It could take years for the returns of clean energy stocks to mirror interest and investment.

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