October 3, 2023 - 7:00am
It’s been a bad couple of months for the renewables sector. As of this week, its share prices have fallen around 20% in only two months. At the same time, oil and gas stocks have rallied by around 6%. Some of this can be blamed on rising oil prices as Saudi Arabia and Russia cut their production targets, but not all of it.
It all started back in June when BlackRock CEO Larry Fink said that his company would no longer be using the ESG (Environmental, Social and Corporate Governance) label. This was a huge blow to the industry — not just because BlackRock is the largest asset management company in the world, but also because it was an early adopter of ESG products.
Fink claimed that the reason he was ditching ESG was because the term had become “politicised”, but seasoned market-watchers saw more cynical motives at play. ESG had come into fashion amid buoyant markets and low interest rates. But now that there were rougher waves in markets, these fashionable products would get their hulls tested.
The same was true of the renewables sector. The sector had grown up alongside ESG investing, becoming more and more fashionable as Net Zero became a mantra for most Western governments. The height of this fad was just after the lockdowns, when markets were casting around for any positive messaging to put the pandemic doom behind them.
Now the results are in, however, and it looks like the renewables sector is taking a beating. As Louis-Vincent Gave of the influential Wall Street research firm Gavekal Research notes:
This poses a huge problem for the Biden administration. It has bet the White House on the renewables sector. President Biden’s flagship policy, the Inflation Reduction Act (IRA), is a behemoth, authorising $891bn in total spending — nearly double the GDP of Ireland. Most of this spending goes to the renewable and green sectors, with $6 flowing there for every $1 invested in manufacturing.
Biden’s bet may have looked good when the bill was passed. The renewables sector was booming then, while Net Zero was on the tip of everyone’s tongue and ESG was seen as the future. Now, with renewables stocks getting hammered and stock markets reawakening to the importance of fossil fuels, the President’s signature spending pledge looks less like an act of responsible statesmanship and more like an oversized bet.
Can the companies that the IRA backs survive when the markets are pricing their peers for a bad ride? It seems unlikely. The green stocks that are currently trading lower have been market-tested. The companies backed by the IRA will have every incentive to milk the subsidies provided even if their business model is not viable. As these companies start to fail, expect Republican lawmakers to have a field day pointing out the money wasted on bad investments.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
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SubscribeIt is amazing how often magical thinking takes hold of the governing class. The idea that you can run our modern industrial societies on sunbeams and windmills has always been utter madness. Ditto the idea that we would all drive battery powered cars.
And yet it persisted for two decades.
Now, suddenly, it is dead!
See also: men can turn into women if they wish hard enough; you can have open borders and a welfare state; there are no differences between the sexes; white men are the cause of all the ills in the world but of none of the good things…
Don’t forgot the notion we can shut down society and the economy and everything will be peachy keen.
Correct. Magical thinking born of deranged groupthink within our Elite and reinforced without by aggressive state propaganda by the evangelical untrustworthy BBC, meaning the public were kept unaware of the realities and truth. Same as lockdown. Catastrophise via bogus hysterical but untestable future models. Now a chink of light…
Hallelujah! The ‘beast’ is dead.
However I was not amazed by the recent outbreak of ‘magical thinking’. Human beings have alway had a propensity for believing such arrant drivel. If they had not, how could one possibly explaining the history of mankind?
For sure the idea of driving battery powered cars with current technology is pure magical thinking, and it is obvious that the likes of Sadiq Khan, Keir Starmer and their colleagues just haven’t thought it through. But unfortunately, the UK conservative government is still pushing forward with electric cars full steam ahead, even if they have delayed things a little. One wonders when reality will actually hit, and the Climate Change Act repealed.
Give it time Johann. I am still shocked that the timorous Tories even managed to bring themselves to delay the ICE ban by 5 years. Now the floodgates have opened, I suspect the waters will wash away the whole bloody edifice. But it will take a while for this to happen.
Market trends only become clear after the event, and it’s becoming clear that the age of fairy tales, unicorns, and magic Grandpa, is rapidly coming to an end.
Time to wake up (early), get dressed (smartly), and go to work (in a workplace), everyone.
Want something for nothing? Well then I hope you’ve got the money to pay for your dinner – because I won’t be buying it for you.
I think this is correct Albireo.
The problem is you will be buying it for him. Various forms of government will confiscate your money (tax it) and give it out in one form of universal income or other to the something for nothing brigade.
The darkening economic clouds and greater reluctance by government to generously subsidise producers of renewable energy has clearly dampened investors enthusiasm.
However, it has become more apparent recently that the voices expressing doubt about the practical reality of transitioning to electricity generation based on renewables and absent fossil fuels, are growing louder and more numerous. Increasingly, the conclusion that wind and solar were the wrong choice for decarbonizing electricity generation looks more certain.
The immediate problem with wind and solar is connecting to the National Grid. Waiting times for a project to be connected to the Grid are presently 10-15 years. While the government was busy subsidising the turbines and solar panels, it has neglected the enormous task of upgrading the Grid to accommodate renewables. Transferring power from the wind turbines in the North Sea, Scotland or other remote location where they are typically located, to where the power is needed, is going to require an enormous new infrastructure of high voltage transmission cables, electricity pylons and substations. It can be done but it will cost tens of billions and litter the country with ugly pylons and cables.
The current insoluble problem with wind and solar is intermittency: what happens when the wind doesn’t blow and the sun doesn’t shine? So far vague notions of battery storage have sufficed. However, it has become clear that the grid level battery storage capacity that would be needed is not possible with current technology,
The big black hole in the middle of the wind generation model is wind droughts. According to MIT It might be possible in 20-30 years time to have grid level storage that could take over from motionless wind turbines to supply the country’s energy requirements for a few hours or perhaps a day. But as recently as February to early March 2021, Britain’s wind energy capacity remained below 20% for 11 days. Obviously solar wasn’t much help in February. But prolonged four week periods of wind drought have been recorded.
In addition to recorded long wind droughts, climate modelling predicts global stilling; a global decline in wind speeds.
The threat of a four week wind drought hitting Britain and our neighbours in the depths of winter, means that wind and solar will always need to be backed up by an entire secondary electricity generation system (fossil fuels/nuclear) that can provide for the county’s entire energy needs for weeks. As such, a system built on wind and solar will always cost prohibitively more to operate than the alternatives, and this will inevitably be passed on to ordinary people and businesses.
The enormous cost of upgrading the Grid combined with the cost and impracticality of maintaining two electricity generation system to produce three times the electricity we currently consume – it’s just not going to happen. Investors would be wise to move their money elsewhere.
‘Calm’ is a lack of wind: ‘drought’ is a lack of precipitation.
“Drought” has become the common parlance in the scientific literature discussing the phenomenon.
Thank you. Another entry in my yukspeak dictionary.
I agree. There is a lack of coherence and – especially in Scotland – an enthusiasm for gesture politics and headline approvals against the background of the lack of a thought through strategy. The farce of large payments to the wind farms because the grid can not take their supply is only one symptom.
It’s worse. The storage capacity has to be equal to roughly twice the length of the longest plausible wind drought in order for the storage facility to be replenished while the wind farms are also delivering power to users once the drought is over.
It’s happening over here too. People think Labour are a shoe-in for the next election. They always forget about shy Tories though which, when coupled with the realisation that the green agenda only works with massive population culls, voting age reform, Luxury Beliefs and significantly curtailed horizons, mean Labour might not even get a minority government.
When even the Tories have cottoned on to the fact that the net zero gravy train has hit the buffers, you know it is the end of the whole boondoggle.
I know the new acronym (it was even mentioned earlier in the article), but I can’t be the only one who struggles to read “IRA” as anything other than “terrorist scum”.
“Can the companies that the IRA backs”
Only the USA could dream up such a ludicrous acronym!
In the good old days ‘we’ used to say IRA stood for ‘I ran away’.
Yet pension funds are investing in renewables due to ESG dogma and leaving people vulnerable.
Yes. Many public sector pension fund ‘Alisons’ are busy trying to stop investment in defence and fossil fuels. It will sadly take a long time for their folly and deriliction of duty to their pauperized pensioners to get recognised and called out. ESG Pol Potism and the Carney Fools and Halfwits still pushing it in the world of finance must be exposed in articles like this. Will they back nukes??
Well, it could also be that the general public has started to listen to highly credentialed climate scientists and physicists that are not telling them that there is “climate change” but not a “climate crisis” and have concluded that they are unwilling to pay the price to solve a non existent crisis.
It could also be that the general public, even those that believe in a climate crisis and that humans are at fault, have begun to see the actual cost of supposedly “green” tech and realized that it is just as awful, but in a different way. From the nastiness of Cobalt mining, to the toxicity of Lithium mining, to the vast amounts of carbon needed to produce and maintain wind turbines, to the dangers of Lithium ion batteries, to the fact that none of these technologies have any good means of being recycled and can be highly toxic to the need to overwhelm farmland, coastlines and natural areas with fields of solar panels and wind mills. All of them are not actually “green” and are bad for the environment.
If you care about the environment then you cannot support “green energy”. The environment is not the climate.
Meanwhile get ready for the next energy crisis. The fools who bet the bank on renewables also neglected nuclear whilst doing their best to close down oil and gas, sadly with some success. . The likes of Carney, Biden, Johnson etc are responsible for the impending mayhem in energy markets but no doubt will seek to blame the oil companies, again. It would be laughable if it were not so dangerous. It’s certainly a tragedy in which the poorest and most vulnerable will suffer the most and through no fault of their own. It is not difficult to imagine social unrest on a wide scale.
The IRA. What a fathomless pit of b******t for the USA to climb out of once Trump is re-elected.
This woke insanity is deeply upsetting. Biden is spending billions on DEI IT projects that have failure baked in and whose overriding criterion seems to be that no white people benefit: https://open.substack.com/pub/theindustry/p/chips-act-tech-hubs-dei?utm_source=share&utm_medium=android&r=ysp20