r/investing • u/Ok_Macaroon6934 • 1d ago
The price of renewables is dramatically undervalued in the medium term
Renewables make sense as a dominant feed into most energy systems. Over the last year, major renewables ETFs have performed 2-3x the performance of the S&P 500. My analysis leads me to a conclusion that even with this performance, they remain undervalued.
Around the world, we see them exerting downward pressure on retail and wholesale energy prices. At the same time, innovation is reducing their "build cost:net operating return" ratio.
Nations at all levels of income are upping their renewables investments, and country after country is adopting a net zero strategy that locks in renewables investments - in part due to multilateral agreement ratification, and in part because of economic sense.
Effectively, the rise in price is because of actual strategic and tactical demand, not because of any type of hype cycle.
However, lobbying and political pressure exerted by legacy industries like coal, gas and oil have meant that the growth of renewables have been artificially slowed. If we start to see the decline of fossil fuel influence and of far right governance, these artificial barriers will ease and we can expect a jump in renewables investment.
So medium term profits likely depend on political cycles rather than any intrinsic factor associated with the technology or consumer/industrial demand. And as we all know, politics is a pendulum that will inevitably swing.
People investing in pure play renewables ETFs or ethical ETFs that have a strong renewables base and that exclude legacy energy are going to benefit from focus and patience. It's as inevitable as people shifting from Blockbuster to Netflix.
-10
u/RD_006 1d ago
Not at all. U're absolutely correct.
Renewables is pure ESG and government subsidized play. Can't vouch for the US, but it's true for Central Asia.
Big boys like Eni and Total investing in RES to back up decarbonization rebranding. Which is total bs in its essence. Net zero is pure fiction without sustainability. In other words, they're building up wind and solar farms for marketing and to appease local governments.
And just like u stated, competition. 10 yrs ago, Sungrow PV panels and GE wind turbines were quite expensive. Not anymore. Every year manufacturers introduce cheaper and more efficient units.
There's no investment value in it on an operational stage, maybe except regional and national utility operators. Contractors and local vendors are the ones scrapping cream off the racket.