What happened
Energy stocks across the market are having a rough day, but clean energy stocks have been hit particularly hard. Rising interest rates, a potential recession, and falling oil prices have put pressure on the industry today.
SolarEdge Technologies (SEDG -2.77%) fell as much as 5.3% in morning trading but is up 3% at 1:50 p.m. ET, the one big recovery on this list. Bloom Energy (BE -1.23%) dropped 6.7% and is now down 1.5%; Plug Power (PLUG -5.17%) declined 6.8% and is now off 2.5%; and Blink Charging (BLNK -2.97%) was down 4.9% at its low and is currently down 2.5% for the day.
So what
Today's news isn't company-specific; it's more macro in nature. The biggest news item of the day was St. Louis Fed President James Bullard saying interest rates weren't restrictive enough and short-term rates could rise to between 5% and 7%. The current target rate is 3.75% to 4%, and investors have been hoping that rate increases will slow down after a series of positive inflation reports have come out.
Energy markets reacted sharply, with WTI crude oil dropping 4.4% to $81.86 per barrel and Brent Crude dropping 3% to $90.11 per barrel. The theory is that higher rates will slow the economy and likely put it into a recession in 2023, which means demand for oil will drop.
Interest rates have also responded, with 10-year government bonds rising 9 basis points in the U.S. to 3.77%, 25 basis points in Brazil to 13.39%, and 13 basis points in Mexico to 9.2%.
Solar, hydrogen, and charging companies are inherently competing against fossil fuels in energy, so when the price of oil falls, it makes them slightly less competitive. However, the bigger impact may be from interest rates. Higher rates mean the long-term revenue from clean energy projects are less valuable, making it more difficult to justify building a solar plant, hydrogen infrastructure, or a charging station in the first place. If rates remain high, it will be harder for all of these companies to grow.
Now what
Renewable energy companies still have major headwinds behind them as demand for cleaner forms of energy rise, more EVs are sold, and governments around the world continue to subsidize development. But most companies have also had trouble making money as they grow, which is a tough place to be as interest rates rise.
I am bullish on the industry long term, but I am sticking with companies that have proven they can be profitable or at least improve margins when interest rates are low because higher rates will make it even harder to make money.
Today's move may be temporary, but higher interest rates are here to stay, and clean energy companies will have to adapt.
