Renewable energy investments are delivering massively better returns than fossil fuels in the U.S., the U.K. and Europe, but despite this the total volume of investment is still nowhere near that required to mitigate climate change.
Those are some of the findings of new research released today by Imperial College London and the International Energy Agency, which analyzed stock market data to determine the rate of return on energy investments over a five- and 10-year period.
The study found renewables investments in Germany and France yielded returns of 178.2% over a five year period, compared with -20.7% for fossil fuel investments. In the U.K., also over five years, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. In the U.S., renewables yielded 200.3% returns versus 97.2% for fossil fuels.
Green energy stocks were also less volatile across the board than fossil fuels, with such portfolios holding up well during the turmoil caused by the pandemic, while oil and gas collapsed. Yet in the U.S., which provided the largest data set, the average market cap in the green energy portfolio analyzed came to less than a quarter of the average market cap for the fossil fuel portfolio—$9.89 billion for the hydrocarbons versus $2.42 billion for renewables.
Speaking to Forbes.com, Charles Donovan, director of the Centre for Climate Finance and Investment at Imperial College and the report’s lead author, said: “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”
In spite of the chaos seen in the fossil fuel markets in recent years and months, Donovan said that many investors were finding it hard to let go of hydrocarbons. “Many investors are sleepwalking through a technological disruption of the energy industry, preferring to believe in a fairyland where upstream oil and gas projects earn big risk-adjusted returns,” Donovan warned. “Those days are gone.” Donovan also warned that, despite the impressive returns from renewables, such figures had “not triggered anywhere near the level of investment required” to decarbonize the economy and mitigate climate change.
This was a point addressed yesterday in a separate report from the IEA, which showed total global investment in energy down 20%—almost $400 billion—compared with last year, largely as a result of the coronavirus crisis. The IEA characterized the drop as “staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions.”
The IEA laid the blame for the collapse on lower demand for energy, lower prices and a rise in non-payment of bills, which were side effects of the pandemic. “The crisis has brought lower emissions but for all the wrong reasons,” said Fatih Birol, IEA’s executive director. “If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment.”
Source: “Just How Good An Investment Is Renewable Energy? New Study Reveals All”, Forbes