Energy crisis bursts green stocks bubble

THE energy crisis has burst a multibillion-pound bubble in green stocks as gas prices surge and the world confronts the true cost of net zero.

Shares in renewable energy companies have tumbled to their lowest level in 16 months, almost completely unwinding gains made during a stampede into companies aiding the shift away from fossil fuels.

A basket of global clean energy shares, which includes renewable giants Iberdrola, Vestas and Orsted, has tumbled 45pc since the record peak a year ago, wiping tens of billions of pounds off their “excessive” value. Rising material costs, frothy valuations and escalating interest rates have dampened investor enthusiasm after a flood of money into the sector. Surging gas prices are also thought to have raised concerns, because they highlight the challenge of ditching fossil fuels.

Stewart Cook, co-head of European markets at Berenberg, said: “Clean energy stocks were caught up in the record moves higher in non-profitable, almost concept-like themes such as ESG and electric vehicles.

“These moves and valuations were exaggerated by huge inflows to investors and liquidity chasing these relatively small, embryonic sectors.” Renewable stocks have fallen by a fifth since the start of December after being hit by a wider shift by investors out of pandemic winners, particularly in tech, into more traditional sectors as interest rates rise.

Solar shares have slipped 45pc from their record peak, while wind firms have dropped by a quarter.

Mr Cook said there were some “excessive valuations and asset price moves” on wider markets that have “burst”.

However, he added that many clean energy stocks still “have great fundamental reasons to own for the longterm”. It comes as figures revealed that private equity snapped up European oil and gas firms worth almost £12bn last year, a huge increase from £232m in 2020. Deals involving UK firms were worth £2.4bn, the data from global law firm Mayer Brown showed.

Norway’s Hitecvision, and the US’S Postlane Partners have been among the more acquisitive firms in the sector over the latest year, its research found.

Oil and gas companies are under growing pressure from shareholders to cut their emissions and switch to renewable energy, with BP pledging to cut its oil and gas production 40pc within the decade.