Renewable stocks are taking an outsized beating among other stocks in the utility sector, which was down more than 10% last quarter.
Investors may be betting that going green will take longer and require more capital in a higher-for-longer interest rate environment.
“As utilities struggle with converting to more green energy, their operating margins are getting squeezed until they can get their utility rates increased,” Louis Navellier, founder of Navellier, a money management firm, told Yahoo Finance.
Higher interest rates are impacting the renewable sector because clean energy projects are capital intensive.
To make matters worse, falling valuations are making it harder for companies to tap into public markets to fund their projects. Also, bonds offering higher yields are competing against dividend yields on utility stocks.
“There is an exodus from ESG products that are suffering from outflows,” said Navellier.
The Global Clean Energy ETF (ICLN) is down about 30% year to date. The solar and wind energy benchmarks Invesco Solar ETF (TAN) and First Trust Global Wind Energy ETF (FAN) are down 35% and 32% during the same period, respectively.
The selling in renewables intensified after NextEra Energy Partners (NEP), a subsidiary of NextEra Energy (NEE) focused on renewables, cut its growth target by half to 6% through at least 2026.
“Tighter monetary policy and higher interest rates obviously affect the financing needed to grow distributions at 12%,” read the company statement on Sept. 27.
NextEra Energy Partners is down 69.27% year to date, on pace for its worst year on record, while its parent company NextEra Energy hit a 52-week low on Friday, down 42% year to date.
Bank of America analysts called the recent sell-off “overblown with collateral damage unfounded.”
“Rates have indeed moved higher through the same period and utilities and renewables are rates sensitive,” wrote Julien Dumoulin-Smith and Paul Zimbardo in a note to clients.
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They continued that “the collapse in confidence in NextEra – the world’s largest renewable developer – has…
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