• Green energy stocks crashed between 2021 and 2023
  • But have they bottomed?
  • The next big bubble in energy may be elsewhere…

Perhaps the biggest investment story of 2023 was the crash in green energy. The Green Bubble, or Grubble, as I call it, popped in spectacular fashion. The cover of Barron’s magazine in November even had the title “The Clean-Energy Crash” and claimed “renewable-energy stocks have fallen by a third this year.” The iShares Global Clean Energy ETF has halved since the beginning of 2021.

Are you thinking what I’m thinking? This smells like an opportunity…

But if we want to figure out whether it’s time for investors to bottom-feed on the carcass of green dreams, we need to understand what went so wrong. The postmortem is ongoing, but everyone has their favourite scapegoat depending on how they vote… or don’t vote.

Part of the story is about the failure of green energy to live up to its promises. The technology is not as advanced as it needs to be. Intermittency remains a problem. Faults and failures continue to plague the industry. Firms didn’t live up to their contracts. Even governments baulked at the price hikes, and there’s increasing concern about green energy’s environmental costs.

Perhaps the most intriguing factor in green energy’s demise, for investors looking to buy the downtrodden sector, is interest rates.

This might sound like a comparatively boring angle when you’ve got scandals and political drama playing out in the news each day, but interest rates may be the biggest reason for green stocks’ demise over the past year and their potential to bounce back in 2024.

Yes, renewable energy tends to have a very low marginal cost once it’s built. It doesn’t need expensive refuelling after all. So, the energy really is “free” in that sense.

But the struggle is in the cost of building renewable energy and its infrastructure in the first place. Such projects are notoriously expensive, and the cost is upfront, long before any revenue is earned. The only way to fund such an expenditure is through a lot of debt, and debt costs interest.

Well, it usually does. Back during the pandemic, interest rates were near zero. But then they were raised at a record pace and to extraordinary highs, considering how much debt our economy is in these days.

These higher interest rates don’t just cut profits for renewables. They also lower the value of renewables projects by undermining their net present value calculations.

Perhaps worse, why invest in a renewable energy project that promises to pay you 10% per year when comparatively safe government bonds offer 5%? You can see why money has fled the sector.

But the biggest problem with this interest rate narrative is timing. Renewable energy stocks began their downturn in January 2021, with a 25% plunge in about three months! This was before the interest rate and inflation dramas took off.

It was, however, when producer price inflation began to rear its ugly head. Indeed, back then, our investment director John Butler and I were busy warning people about the coming consumer price inflationary spike because we’d seen the producer price spike that would eventually make its way up the supply chain and to your wallet.

Speaking of supply chains, renewables were also hit especially hard by the supply chain disruption back then because of their complexity and reliance on international trade and manufacturing.

Put all of this together, and it seems to me that renewables have been through the perfect storm over the last three years. Supply chain chaos, producer price inflation, record interest rate hikes, and quite a lot of bad press.

One last warning before I point out that all of this may offer a good entry point for long-term investors. The man who explained how excessively loose monetary policy inflates and pops asset bubbles, like the Grubble, also specifically warned that it is not possible to reinflate them. Any attempt to use monetary policy to bring back the heady days of a housing bubble, tech bubble or green energy bubble just ends in inflation. Ludwig von Mises warned about this a century ago:

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system involved.

So far, at least, central bankers have decided to let the Grubble burst and focus on keeping a lid on inflation… if a little late. There’s no doubt that this was a tough decision, given that they’d recently added climate change to their list of mandates. Sabotaging the green energy industry with higher interest rates is probably not what green enthusiasts at central banks had in mind for 2023…

Anyway, this cataclysm of factors undermining green energy has already played out. You might notice that many of the headwinds are about to become tailwinds…

Interest rates are expected to fall in 2024. Commodity prices have come down a lot, easing inflation pressures. Energy infrastructure designed to link up renewable projects is in the works. The supply chain chaos has abated. Inflation is tumbling for both consumer and producer prices. The list goes on…

The deep and underlying flaws that were warned about in The Fleet Street Letter remain in place. Net zero is still a fairy tale, but fairy tales have a lot of chapters.

I’ve asked our energy expert, James Allen, to weigh in on whether now is the time to buy into green energy again. So, keep your eyes peeled for more on that.

And let me tell you, if you saw his track record for delivering green energy investment profits back in 2021, you’d be interested…

Speaking of track records, did you know about The Fleet Street Letter’s illustrious and sometimes scandalous history? You won’t believe what I found in the vaults of the British Library…

Until next time,


Nick Hubble
Editor, Fortune & Freedom