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Will Renewable Energy Save Diminishing Energy Stocks In 2020?

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Ryan Kh's picture
CEO Energy Pro

I'm Ryan, a serial entrepreneur and technologist. My unique skillset and open-minded approach to business has generated more than $3 million in revenue across his portfolio of tech startups with...

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  • Nov 1, 2020

The demand for fossil fuels such as coal and oil continues to rise across the globe, despite clear and obvious attempts to embrace clean and renewable energy. In fact, demand for this type of energy increased by 2.3% in 2018, with this representing the single biggest annual increase in more than a decade.

However, this market continues to wage a war on multiple fronts, with the sustained decline of the global oil market impacting heavily on demand and the share performance of associated stocks.

This issue is being exacerbated by the fact that existing fossil fuel resources are expected to be depleted by 2060, which is also encouraging nations to eschew traditional energy and seek out cleaner alternatives.

Many experts are wondering if renewable energy could save diminishing energy stocks in 2020, while paving the way for a greener and more sustainable world in the future. Most opinions are still speculation at this point, but it is reasonable to be optimistic.

The State of the Global Energy Market

The growing demand for fossil fuels has papered over increasingly cavernous cracks in the traditional energy market, while the election of Donald Trump as President of the United States has also provided an interim boost to this sector.

Still, the traditional energy sector has declined incrementally year-on-year for a while now, with associated stocks and shares also seeing their valuations plummet in the process.

This trend has born out once again recently. While the XLE energy ETF is up 4% over the course of the last week, it remains down nearly 50% when compared to the same time in 2019.

As summarized above, the market’s reliance on oil is at the heart of this trend. Unfortunately, this asset class having suffered significantly from an ongoing imbalance between supply and demand ever since the beginning of 2016.

Oil prices once again tumbled by nearly 2% at the end of last week, as an unexpected increase in Libya’s crude supplies had a profound impact on valuations and undermined much of the work done by OPEC to cap production levels across the globe.

Shortly after this event transpired, the price of US crude fell and settled at $39.85 per barrel, which represented a decline of $0.79. This marked a very concerning 1.9% drop. On a weekly basis, US crude prices declined by 2.5%, while Brent contracts lost 2.7%.

How has Coronavirus Impacted on the Energy Market

Of course, this ongoing imbalance between supply and demand has been compounded by the coronavirus pandemic, which dedicated global demand further and sent oil plunging to an 18-year low.

More specifically, US crude oil values fell by 6.6% (or $1.42) at the beginning of March, settling at $20.09 and its lowest level since February 2002.

Of course, traders and brokerages have helped to track these changes in real-time, but what’s really interesting is that the upcoming US election and a potential win for Democrat candidate Joe Biden could provide an unlikely saviour for the energy market as a whole.

The reason for this is simple; as Biden’s economic and environmental policies are built upon a comprehensive $2 trillion spending plan, which will focus on creating a green infrastructure that revolutionises the US economy and turns the focus away from depleted fossil fuel resources.

This would immediately benefit clean energy stocks such as First Solar and Sunrun, who would bloom on the back of direct government spending and other incentive plans to encourage households and businesses to switch to clean energy sources.

This would also boost the energy market and help to reverse the losses experienced by traditional firms and oil companies, creating a brand-new focus for the space and helping investors to seek out alternative opportunities to profit.

Such a scenario may also be closer than you think, with Biden remaining approximately 10 points ahead in the national polls and the favourite in a number of supposedly key swing states.

Could Renewable Energy be the Salvation for This Industry?

Many experts hope that renewable energy will soon replace traditional fossil fuels. This obstacle, while laudable, is optimistic at best. Brookings author Samantha Gross recently covered this topic in her article Why are fossil fuels so hard to quit?

However, renewable energies can still serve some very important purposes. They can slow the progression of climate change, which is considered the worst threat to the survival of humanity.

Renewable energy may also be the temporary salvation for the energy industry, as much as the environment. These sources won’t need to be used to the same extent if we become more dependent on clean energy. As a result, we can prolong the use of these fuels while we build up our clean energy infrastructure to take over.

Of course, a lot of factors need to be taken into consideration. A Portland State University study found that renewable energy could create more income inequality.

However, this doesn’t mean that this is a certainty. There are options that policymakers can explore to prevent inequities in the energy market as newer, more renewable energy sources are used. A slow shift towards renewable energy while gradually phasing out fossil fuels could be the answer.

Matt Chester's picture
Matt Chester on Nov 2, 2020

I wonder on a more fundamental level whether this should be our measure of end goals, though. In a world where energy is a fundamental need and right, as is the salvation of the natural environment around us, what's the true value of stock evaluation? Of course, these companies need to be profitable for them to continue to provide their services and for the business to keep humming, but is it directly comparable to other industries? 

Ryan Kh's picture
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