Shlomo Maoz: These are the reasons why you should think before investing in green energy

Green, but less: Thick grays are tied in the capital market sky. We will start with green energy stocks and ETFs, in the field of clean energy, they are declining and materializing this year. 2020 was a great year for the renewable and green energy industry. Rises in the shares of companies in the field were in anticipation of the realization that US President-elect Joe Biden would be elected and do everything possible to reduce global air pollution, joining the 2015 Paris Convention to reduce greenhouse gas emissions into the atmosphere, a treaty abandoned by former President Donald Trump.

As in any industry, stockholders’ profits usually come from hope, from anticipation for something to happen. Once the expectation materializes, like the election of US President Biden, there are realizations in the capital market as well. The expectation is always sweeter than reality, it embraces fantasies and drags more and more investments towards “something” that will happen. In fact the renewable energy industry became very crowded, as was the bubble, the internet and ownership of names on the internet, before crashing from its peak in October 2002, after several years of sharp rises in stock prices. The Nasdaq rose by 400% during this period before falling by 78%.

In the six months to March 2021, a record amount of nearly $ 14.7 billion flowed into American funds investing in renewable energy, compared with $ 1.3 billion in the same period a year earlier (according to Morningstar). The green energy stock index rose by 150% during the year before March this year, leading to an increase in the profit multiplier to 35, according to the S&P Global Clean Energy index.

Green stock prices are now falling, a decline of about 18% since the beginning of the year, but are still with a profit of 87% in the last year and of 37% in total over the past three years. By comparison, the S&P 500, a benchmark for U.S. stock performance, has risen 16 percent since the beginning of the year, up 40 percent in the past year and 55 percent in the past three years. You can see that green stock volatility is higher and the result Their over the years it is not necessarily better.Even in the tall green cedars the oxygen becomes dilute.

Solar panels field (Photo: Reuters)

Another signal is the earnings multiple in the US 500 shares, which was about 45.5 in June. That is, it takes 45.5 years to recoup the investment in stock prices today, compared to a multiplier of 31.3 a year ago and compared to 21.4 two years earlier. It should be noted that the profit multiplier of the 500 was 46.7 in March 2002 before falling, or rather crashed, after a year, to 27.9 in March 2003.

There are several reasons for the decline in the share prices of companies engaged in the field of green energy. The first reason is the realization of profits and a huge surplus in companies engaged in the field. As is the case in any area where density and congestion are increasing, there is more supply of stocks in the green energy sector and thus the price is decreasing.

A second reason is that it is quite possible that the powers will reach an agreement with Iran on the nuclear issue that Israel is so concerned about, and rightly so. Iran’s return of oil supply to the West and Southeast Asian markets, although today considered a polluting and unfriendly energy source, with polluting greenhouse gases, will increase global energy supply and compete with all other energies, including green.

A third reason is that the Fed has announced that it intends to raise interest rates twice by 2023. It may be too early to raise interest rates as early as 2022. Raising interest rates immediately lowers the prices of green energy companies. Explain, this is an industry that requires a large immediate investment at the beginning of the project life, in order to operate energy production, when the receipts continue throughout the life of the project. This means that the capitalization rate of the company will rise, so the share price of the companies by definition will fall. A simple, sharp and smooth account. Green energy companies had a renaissance when interest rates were zero and even negative, which is one of the reasons their value has gone up.

A fourth reason for the decline in the share prices of solar energy companies is President Biden’s decision last week to confront the Chinese about harming the Uyghur people, with a Turkish-Muslim resident in northwestern China, in Xinjiang Province. It is the “new province”, as it was conquered by the Chinese “only” in the 11th century).

Demonstration for the transition to green energy (Photo: Nati Shochat, Flash 90)Demonstration for the transition to green energy (Photo: Nati Shochat, Flash 90)

The war on the Chinese is being carried out by sanctions – that is, a ban on the purchase of products from Chinese companies operating in the province through labor camps and Uighur people’s enslavement (according to the Americans) – imposed on a number of companies; Hoshine Silicon Industry, Xinjiang Daqo New Energy, Xinjiang East Hope Nonferrous Metals, Xinjiang GCL New Energy Material and Xinjiang Production Construction Corps. The problem is that most of these companies, some of them subsidiaries of huge Chinese companies, produce the essential raw materials for solar panels at competitive and cheap prices such as monocrystalline silicon and also polysilicon, 40% of which are produced in the Chinese enslavement of the ancient Muslim people.

The sanctions will raise the prices of the raw materials that are so vital and harm the viability of the solar, solar energy industry. In March, the U.S. Treasury Department said that in this Muslim region of China there is harm to the population bordering on genocide. In fact Biden indirectly says that global warming cannot be fought through the enslavement of peoples. Interestingly, Chinese Hoshine Silicon Industry shares fell after Biden’s announcement and immediately recovered. It should be noted that the Trump administration has banned the import of agricultural products from the Uighur region for the exact same reasons, and thus the attack against China does not cross the parties in the US.

Clean but not profitable

There are also beneficiaries from the new situation created. For example, the stock of a Chinese company that trades in the US and was not included in the list of sanctions, because it operates within China. JinkoSolar Holding Co., too, fell after Biden’s announcement and immediately rebuilt itself. The American company located in Tampa Arizona First Solar, the largest in the West and the third largest in the world, produces solar panels, with a turnover of $ 2.7 billion a year. Of course, it enjoys the sanctions imposed by President Biden, its share rose well after its announcement. The American company SolarEdge Technologies Inc., with a turnover of about $ 1.5 billion, has lost about 15% of its campaign since the beginning of the year.

The question is whether the American sanctions will bring an edge to American companies in the field of green energy. The US Clean Energy ETF ICLN and TAN have fallen by about 20% since the beginning of the year, the PBW ETF has fallen by about 15%. In Israel, too, cleantech shares have performed poorly since the beginning of the year. The cleantech index has lost about 14% of its value since the beginning of the year.

Capital Market.  Illustration (Photo: FREEPIK)Capital Market. Illustration (Photo: FREEPIK)

Maybe Israeli companies in the solar field will benefit from the purchase of Chinese equipment confiscated by the American authorities? Not really. For the first time, under the Bennett-Lapid government, the Israeli Foreign Ministry supported with the United States (including 40 countries, mostly Western) condemning China in the UN Human Rights Council over the Chinese’s harm to the Uyghur minority. This is a change from the line the former prime minister followed Benjamin Netanyahu, Who did not want to provoke the Chinese, who also asked the new government in Israel not to vote against them.

Let’s return to the general capital market. With the end of the first half of the calendar fiscal year, the markets in the world, and naturally also in Israel, will be nervous in all areas, not just the green energy that has yellowed. The shares, which are in each of the provident, pension and advanced training funds, also for savers in parallel funds in foreign countries, have soared to a new high. Profit multipliers are very high, as noted. The price of oil does not stop rising, and there is concern about inflation among some economists, because of the Biden administration’s almost endless printing of money.

The Fed said it would raise interest rates and the markets were shocked for several days, ignored and re-increased, for the time being, because in the meantime it is possible to earn more and more. The world bond yield is very low, in fact negative in real terms. A huge accumulation of public pension funds in the world and in Israel is in this bond, with a negative real yield or alternatively in bonds with a positive yield, but with a low credit rating, with high risk on its side. Low interest rates are pushing portfolio managers into increasingly risky assets.

Towards a collapse?

Capital markets are cyclical, weird, a little cheeky. They do not announce in advance when they will collapse. Sometimes there are slight signs like in nature, smoke or a little lava erupting from a volcano that has hit in the past or a new volcano, but doomsday is unknown. This was the case last year with the outbreak of the Corona virus, what happened in 2018 with the Bitcoin crash with the Shanghai stock index, in August 2015 trillions of dollars were written off from falling stock prices following the fall in commodity prices and the collapse of most currencies against the dollar. , Which were suddenly like developing countries in need of rescue and infusion of the International Monetary Fund and the European Union.

Of course you all remember the September 2008 crisis, with the collapse of Lehman Brothers Bank following the subprime crisis that shook the world badly. This is only a partial list, there are many other crises that have occurred, including the September 11, 2001 attack on the Twin Towers in New York. True, it’s good to have green energy and renewable energy, it’s good that the air is cleaner, it’s good that the US is back to lead the world and it’s good to feel clean air at new stock market heights. But let’s mention that “man will never triple his money.”

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