Renewables feel the heat

Renewable power is considered an alternative to fossil fuels and its use is meant to help countries achieve their ‘net zero’ targets. However, investor sentiment around renewable stocks has changed, partly because companies operating in the sector have suffered significant losses.

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Daniel Casali
Published: 03 Jan 2024 Updated: 03 Jan 2024
ESG Savings and investments Technology

Shares in Germany’s Siemens Energy crashed by 37% last year amid quality issues with its wind turbines and Nasdaq-listed SolarEdge Technologies observed a 30% decline[1].

Denmark’s Ørsted A/S, the world’s largest offshore wind farm developer, saw its share price plummet by 25% in August 2023[2].

So, why is the renewable energy sector experiencing such losses? What are the risks associated with investing in renewables and are they likely to change?

Renewable risks

Wavering public sentiment and government support

Public sentiment towards tackling climate change is wavering in some developed countries. British Prime Minister Rishi Sunak recently announced a delay to several green policies - and a YouGov survey showed that the majority (51%) of people agreed with him. Of those surveyed, 60% do not believe that net zero can be reached by 2050 without higher costs to ordinary people.

A survey conducted for the Economist in 2023 showed that less than 40% of people from countries including Germany, the US and France would be willing to pay more tax to prevent climate change.

In the US, there is a highly diverse range of opinions. Former president Donald Trump and some in the Republican party are suspicious of energy transition targets and wary about being dependent on China as a supplier of green technology. Only 21% of Republican voters believe climate change is caused by human activity, against 87% of Democrat voters.[3]

A divided world

Despite efforts in the West to reduce CO2 emissions, emerging economies continue to pump out more carbon. In 2023, developing countries accounted for around 67% of total global carbon emissions.[4] This is due to the emerging world being far behind the West in terms of economic development.

For example, although China is the largest producer and exporter of clean technology, coal is still used for 70% of their electricity grids.[5] China’s primary goal of becoming the lead economic superpower by 2049 will take precedence over their carbon emissions.

Law of diminishing returns

Investment in green projects is being made all over the world. Some argue that we are on the verge of a technological revolution, emphasised by the reduction in costs renewable technology seen over the past few decades.8

Yet, further productivity gains are limited by the law of physics. For example, the Betz limit of 60% refers to the theoretical maximum efficiency of a wind turbine in converting kinetic energy to electrical energy. The current conversion efficiency is 45%.[6] This suggests much of the technology gains from wind turbines have already happened.

The industry’s exponential progression could be unsustainable as we approach these physical limits and the room for revolutionary progress decreases. The law of diminishing returns applies as the cost reductions seen in solar and wind power decelerate, with every incremental gain yielding less progress than before.

Intermittency issues

Even if technological advances allowed wind and solar to operate at maximum efficiency, any gains would go to waste as there’s no viable energy storage solution available now.

That’s why there is still a reliance on fossil fuels to provide a constant source of energy during peak times.

Rising costs and land usage

The increasing costs of mining and the materials used to make batteries for electronic vehicles have seen prices soar and this has been passed onto consumers[7].

What’s more, wind and solar farms require a lot of space, and this is another reason why they’re becoming unpopular.

As a result, offshore wind farms have become more attractive. However, rising Levelized Cost of Electricity (LCOE) for offshore wind, which increased by 50% from 2021, mainly due to hikes in interest rates, has increased the cost of energy production and threatens to reverse the savings renewable energy has provided over the last decade.[8]

Competition and geopolitics

Global cooperation is at the heart of a successful energy transition, but geopolitical risk has intensified due to rising tensions between China and the US. The US is actively hostile to investment from China under new transitionary regulations and aims to cut China from its supply chain to secure energy independence.[9]

However, China is the established world leader in clean technology and scale of production by cost. It’s a position unlikely to be usurped by the US. By excluding China, the US is slowing the clean energy transition.

Infrastructure challenges

Increased investment is often met with infrastructure challenges, which prevent renewable power from supplying a larger share of the electricity grid. Unlike China, which has increased its high voltage transmission lines more in the past decade than the US, Europe, Brazil and India combined, the US suffers from higher construction costs and permitting issues.9 China’s power grid is already much larger with higher capacity, and a higher annual growth rate of 7.5%, compared to 1% in the US and Europe.9

The case for renewables

While there are challenges preventing a wider adoption of renewables there are positive changes within the industry and by governments that could promote growth and investment in this sector. These include:

Government-led investment and regulation

Renewable power is supported by legislators. For example, the United Nations’ 2015 Paris agreement requires huge investment from countries to decarbonise. More recently, the EU is introducing fast-tracked permitting to improve auction systems for wind energy, increasing access to finance and stable supply chains.[10]

Meanwhile, the US Inflation Reduction Act (IRA) seeks to accelerate the country’s energy transition, encouraging between $400 billion to $1 trillion in investment into the domestic production of solar power, large capacity batteries and other forms of renewable energy.10

Increasing use of renewables

Solar and wind energy is set to produce more electricity than conventional fossil fuels by 2050.10

Reports suggest that demand for solar in the US could rise by over 40% in 2023, while demand in Europe grew sharply last year, reaching a new record. Wind power use is also driven by regulatory changes such as Europe’s REPowerEU (the European Commission’s plan to make Europe independent of Russian fossil fuels).[11]

Breakthrough in energy storage

Intermittency problems persist because of variable weather and the lack of sustainable batteries to store the excess energy produced by solar and wind. However, innovation in energy storage could indicate that a solution is on the horizon. For example, US battery capital expenditure announcements showed positive momentum in September 2023 with $2 billion investment into domestic battery plants.

Form Energy, a US company based in West Virginia, have pledged $760 million to fund a manufacturing facility dedicated to developing and building iron-air batteries.[12] Unlimited by size, these batteries can provide over 100 hours of power, to bridge the energy gaps of renewable power.

Solid Earnings Per Share growth

Despite public scepticism towards investing in companies operating in renewables, Earnings Per Share remain high, emphasising the sector’s consistent profitability.4

This industry has performed well over the past 10 years and could maintain these earnings, stemming from huge amounts of investment under new regulatory policies that could drive a recovery in renewable companies share prices.

Low cost of renewables and less demanding valuations

With more investment and subsidies supporting the renewable sector, electricity produced by solar and wind is becoming cheaper compared to traditional hydrocarbons.

Renewables have remained at the bottom of the power cost curve, regarding LCOE, at $0.05-0.07/kWh in 2023.10 Meanwhile, the LCOE of fossil fuels remains at around $0.1-0.2/kWh.

Interest Rates dominate the near term picture

To achieve net zero, a combination of sustained renewable energy investment and greater global co-operation by governments is required.

Near term stock price performance is likely to be dominated by the current tight fiscal environment, at least until inflation or rates subside. Longer term investors also need to watch out for a scalable storage breakthrough that would re-ignite the renewables investment case.


[1] Siemens Energy Shares Crash 37% As Renewable Bust Sparks 'Green Panic' | ZeroHedge

[2] Ørsted shares fell 25% after it reveals troubles in US business

[3] RealClearPolitics - Election 2024 - General Election: Trump vs. Biden

[4] LSEG Datastream, Evelyn Partners Data at 23/10/2023

[5] BNEF, Gavekal Dragonomics/Macrobond – Gavekal - The_US-China_Clean_Energy_Competition (002) 2023.pdf

[6] New energy economy - Mark Mills.pdf – law of diminishing returns

[7] Mark Mills - the-energy-transition-delusion_a-reality-reset Aug 22.pdf

[8] WILTW 19/10/23 BloombergNEF

[9] BNEF, Gavekal Dragonomics/Macrobond – Gavekal - The_US-China_Clean_Energy_Competition (002) 2023.pdf

[10] The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021 (

[11] Global solar demand to grow by 40% in 2023 - Bloomberg (

[12] Form Energy Reveals Iron-Air 100 Hour Storage Battery - CleanTechnica

Important information

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. Details correct at time of writing.