Renewable energy stocks outperforming fossil fuel peers during COVID-19 crisis

Renewable power stocks have outperformed fossil fuels peers both over the past 10 years and during the COVID-19 crisis, according to a new report published by Imperial College Business School in the UK.

The research, conducted in collaboration with the International Energy Agency (IEA), covered listed companies in the US, UK, Germany and France, and indicates that renewable energy stocks offered both significantly higher returns and lower annualized volatility than fossil fuels over a 10-year period. US renewable energy stocks returned 200 percent from 2010 to 2019, while fossil fuel shares returned 97 percent.

Further, renewable energy stocks in the US advanced 2.2 percent in the first four months of 2020, compared with a 40.5 percent drop for fossil fuel companies, according to the research. The S&P 500 index retreated 9.4 percent in the same period.

"There's real momentum gathering behind renewable power, based purely on their economic advantage,” said Dr Charles Donovan, Executive Director of the Centre for Climate Finance and Investment at Imperial College Business School. “Our results show that renewable power is outperforming financially, but has still not attracted sizable support from listed equity investors.”

The COVID-19 pandemic is driving the largest drop in global energy investment in history, with spending set to plummet almost US400 billion this year, according to the IEA’s World Energy Investment 2020 report. The pandemic will likely lead to the proportion of global energy spending that goes to clean energy technologies – including renewables, efficiency, nuclear and carbon capture, utilisation and storage – rise toward 40 percent this year, as fossil fuels take a “heavy hit,” the agency said.

“The crisis has brought lower emissions but for all the wrong reasons. If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment,” said Dr Fatih Birol, the IEA’s Executive Director. “The response of policy makers – and the extent to which energy and sustainability concerns are integrated into their recovery strategies – will be critical.”

A post-crisis focus on value and quick delivery, and environmental issues “could provide an opening” for cleaner technologies, especially for solar PV and wind solutions, which represent both cheaper options and feature “relatively short investment cycles.”