Renewable energy stocks have experienced a significant sell-off following concerns over potential policy changes if Donald Trump returns to the White House. Short sellers have reportedly profited over $1.2 billion from the downturn in this sector.
Financial institutions like Arrowstreet Capital and Qube Research & Technologies have established short positions against companies such as Norway's Nel, specializing in hydrogen energy, and Germany's wind turbine manufacturer Nordex. Concerns have arisen regarding Trump's potential termination of the Inflation Reduction Act initiated by President Biden, which could halt tax credits for renewable energy and offshore wind farm developments. This uncertainty has contributed to the sharp stock price declines for these companies.
Similarly, the US stock market saw hydrogen fuel cell company Plug Power (PLUG, Financial) and solar firm Sunrun (RUN) plunge by 22% and 30%, respectively. According to S3 Partners, these stocks alone generated around $350 million in profits for short sellers. Overall, short positions in the top 20 US and European renewable energy stocks have garnered over $1.2 billion in profits.
The renewable energy sector has been a popular target for short-sellers due to the pressures from high inflation and interest rates, which have impacted companies that saw rapid stock price increases during the pandemic onset. These pressures have intensified as the probability of Trump's return to the presidency has risen.
Deepa Venkateswaran, head of utilities and clean energy research at Bernstein, noted the anxious outlook regarding the US election results and the expected impact of potential Trump policies. Offshore wind projects, distinct from solar and onshore wind, require federal permits. Trump has previously stated his intent to terminate offshore wind projects and revoke subsidies under the Inflation Reduction Act if elected.
According to Eirik Hogner, an executive at investment management firm Clean Energy Transition, the renewable energy sector has long faced challenges, leading to investor frustration and loss of patience. The recent market sell-off was anticipated due to the impact of policy announcements like the Inflation Reduction Act when initially launched.
Denmark's offshore wind giant Orsted and wind turbine manufacturer Vestas emphasized the importance of renewable energy job creation in the US, particularly in "red states," a day before the US election on November 5. Vestas CEO Henrik Andersen expressed skepticism that Trump's campaign statements would materialize into actionable policies and emphasized the need to evaluate actual outcomes.
Michelle Davis from Wood Mackenzie expects significant modifications to the Inflation Reduction Act. She warns that drastic changes in tax credits could potentially reduce new renewable energy capacity by a third over the next decade. Additionally, RBC analysts caution that future offshore wind projects might face delays due to potential federal agency interventions.
