Green energy companies, including solar, wind and hydro, have been in high demand since the war in Ukraine forced the world’s economies to replace Russian oil and gas as soon as possible and accelerate the green transition.
Written by Esti Dweck, CIO
The share prices of the most popular companies in the field of renewable energy have risen dramatically since the beginning of the war. In this regard, prices for the largest companies in the industry have risen sharply. For example, in the period from February to April, the price of Enphase Energy almost doubled, SunPower rose by 80%, and First Solar recorded an increase of more than 40% in just a few weeks. However, achievements have been short-lived, raising the question of whether the growth of green technology is another wave of speculative bubbles that already exists, or whether the growth may be long-term.
The growth potential is real
Carbon-based fossil fuels provide about 85% of the world’s energy needs, leaving renewable energy a small market share in the global energy portfolio. Thus, the sector has significant growth potential, especially as installation costs are significantly reduced as clean energy production capacity increases, making green energy technologies more accessible and powerful for customers.
Over the last decade, costs for the installation of wind turbines on shore have fallen by more than 30%, and wind power capacity has more than tripled. During the same period, the cost of installing solar photovoltaics (PV), which converts light into electricity, decreased by about 80%.
Rapid migration that is accelerating
Renewable energy use grew by 3% in 2020 as demand for all other fuels fell, according to the latest Global Energy report published by the International Energy Agency (IEA). The main driving force was the growth of electricity production from renewable sources by almost 7%, which followed the increase in the volume of renewable electricity by 45% compared to the previous year. According to the IEA, the latter has been the largest year-on-year growth since 1999.
This trend should accelerate significantly in 2022, given the war in Ukraine and Europe’s desire to quickly move away from Russian energy. And time passes; Russia has decided to suspend gas exports to Poland and Bulgaria, while NATO and other countries are considering replacing Russian fossil fuels and potential bans on Russian energy imports.
In addition, the fight against climate change is intensifying, given the growing threat to the planet. According to the International Energy Agency, about 88% of all energy production by 2050 must be restored to limit global warming to 1.5 degrees Celsius. Wind and solar energy will play a leading role in achieving the goal.
Thus, according to the IEA, the production of electricity from renewable sources in 2021 should increase by more than 8% and reach 300 TWh, which will be the fastest annual growth since the 1970s. Solar photovoltaic and wind power plants should increase renewable energy by two thirds. China alone is expected to account for almost half of the world’s renewable electricity growth in 2021, followed by the United States, the European Union and India.
The industry is expected to at least double over the next ten years
Green energy was already on the way to becoming a “new norm”, and this trend became clearer with the start of the war in Ukraine.
According to data published by Allied Market Research, the cost of renewable energy was $ 881.7 billion in 2020, and the industry is expected to reach $ 1,977.6 billion by 2030 with a cumulative annual growth rate of 8.4% in 2030.
This growth potential makes renewable stocks necessary for investors. Of course, the rise in prices for renewable energy companies is speculative, but much of it is due to growth prospects and very favorable fundamentals.
The sector’s revenue since the end of 2019 was almost 160% and has the potential to surpass the S & P500 in 2022, despite some challenges.
Overcome tougher monetary conditions and supply chain constraints
Green energy companies are focused on growth; they are ready to provide powerful potential returns for investors who want to increase their portfolio by taking advantage of sustainability trends.
But they also face some challenges, including tighter monetary policy, supply constraints and rising commodity prices.
Tighter monetary policy
Although growth stocks are expected to remain under pressure from tighter central bank policies and sharp interest rate hikes to curb inflation, much of the rise in consumer prices is due to rising energy prices.
Thus, the growth of household electricity bills should accelerate the transition to “green” energy sources, and green technology stocks can continue to operate, even with higher inflation and rising interest rates.
Despite supply chain constraints due to the Covid pandemic, rising delivery costs and rising prices for key goods, capacity remains at record highs to accelerate the transition to energy.
Enphase Energy, the world’s largest supplier of microinverter-based solar and battery systems, announced in early April that it had expanded its relationship with Flex to increase global capacity and improve delivery to consumers in Europe.
SolarEdge, meanwhile, said it plans to issue more shares to fund potential acquisitions, while SunPower and First Solar are preparing to team up to produce solar models that may be available to customers in the near future. The next eighteen months, despite supply constraints and inflation in commodity prices. .
In addition, the renewable energy sector is benefiting from powerful government subsidies to accelerate the transition to green. It should also continue to stimulate the transition to renewable energy sources and support the rapid growth of industry, which will be reflected in the stock prices of green companies in the medium and long term.
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