A new report from Imperial College London found that renewable energy investments offer hugely … [+] greater returns than fossil fuels—but there’s a catch.
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Renewable energy investments are delivering massively better returns than fossil fuels in the U.S., the U.K. and Europe, but despite this the total volume of investment is still nowhere near that required to mitigate climate change.
Those are some of the findings of new research released today by Imperial College London and the International Energy Agency, which analyzed stock market data to determine the rate of return on energy investments over a five- and 10-year period.
The study found renewables investments in Germany and France yielded returns of 178.2% over a five year period, compared with -20.7% for fossil fuel investments. In the U.K., also over five years, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. In the U.S., renewables yielded 200.3% returns versus 97.2% for fossil fuels.
Green energy stocks were also less volatile across the board than fossil fuels, with such portfolios holding up well during the turmoil caused by the pandemic, while oil and gas collapsed. Yet in the U.S., which provided the largest data set, the average market cap in the green energy portfolio analyzed came to less than a quarter of the average market cap for the fossil fuel portfolio—$9.89 billion for the hydrocarbons versus $2.42 billion for renewables.
Speaking to Forbes.com, Charles Donovan, director of the Centre for Climate Finance and Investment at Imperial College and the report’s lead author, said: “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”
Despite ongoing volatility in the oil and gas markets, investors still seem reluctant to give up on … [+] fossils.
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In spite of the chaos seen in the fossil fuel markets in recent years and months, Donovan said that many investors were finding it hard to let go of hydrocarbons. “Many investors are sleepwalking through a technological disruption of the energy industry, preferring to believe in a fairyland where upstream oil and gas projects earn big risk-adjusted returns,” Donovan warned. “Those days are gone.”
Donovan also warned that, despite the impressive returns from renewables, such figures had “not triggered anywhere near the level of investment required” to decarbonize the economy and mitigate climate change.
This was a point addressed yesterday in a separate report from the IEA, which showed total global investment in energy down 20%—almost $400 billion—compared with last year, largely as a result of the coronavirus crisis. The IEA characterized the drop as “staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions.”
The IEA laid the blame for the collapse on lower demand for energy, lower prices and a rise in non-payment of bills, which were side effects of the pandemic.
“The crisis has brought lower emissions but for all the wrong reasons,” said Fatih Birol, IEA’s executive director. “If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment.”
Indeed, even before the coronavirus, global investment in green energy was falling well short of that necessary to hit the Paris Agreement target of limiting global warming to within 2 degrees Celsius by 2100. In order to achieve that, countries will need to at least double their annual investment in renewables compared to current levels, from around $310 billion to more than $660 billion, according to the International Renewable Energy Agency.
In answer to why investment in renewables remains relatively low despite apparently stellar returns, the Imperial College report noted that large asset managers and institutional investors such as pension funds required deeper liquidity than the renewables market currently held. “It is easier to allocate a meaningful percentage of their assets under management to renewables if the market is deep and liquid,” the report stated. “Currently, that is not the case.”
The authors attributed much of the uncertainty around renewables to the market being relatively young. “It is not surprising that many investors still consider the renewable power sector as a nascent area,” they wrote. “There are too few pure-play companies, too little information about those companies, and relatively short trading histories. While there is a body of literature developing on the specific investment risk factors associated with renewable energy, the body of empirical evidence remains limited.”
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
