INSTITUTIONAL INVESTORS are abandoning fossil fuel companies in favor of renewables, driven in part by the perception of improving renewable energy (RE) returns as technologies improve, according to a study of publicly-traded RE companies in developing markets.
According to the study, “Clean Energy Investing: Global Comparison of Investment Returns,” issued by the International Energy Agency and London’s Imperial College Business School Centre for Climate Finance & Investment, the listed RE sector across a number of emerging markets and developing countries posted returns of 136% in the decade ending in 2020, against 113.8% for fossil fuel companies.
RE volatility was higher though at an annualized 6.9% compared with 5.4% for fossil fuels.
“The report’s findings clearly demonstrate the direction of travel for energy markets around the world,” said Sam Reynolds, an energy finance analyst for the Institute for Energy Economics and Financial Analysis.
“We are witnessing capital flight at an unprecedented rate from fossil fuel companies towards renewables, and these trends are likely to continue as rapid innovations in renewables and storage technologies continue to drive down capital costs,” Mr. Reynolds told BusinessWorld in an e-mail on March 25.
The report looked at the performances of 743 companies across the world, of which 545 were fossil fuel users and 208 RE.
Thirty-four RE firms based in developing economies, and some 112 fossil fuel companies, including four Philippine firms, were included in the report’s analysis. The four were AC Energy Corp., Pryce Corp., PXP Energy Corp., and Semirara Mining & Power Corp.
The report studied companies with market capitalizations of at least $200 million, to better target the assets more likely to be owned by institutional investors.
“Across all portfolios, renewable power generated higher total returns relative to fossil fuel. Annualized volatility for renewable power was lower than fossil fuel in the global and advanced economies portfolios, but higher in the China and emerging market and developing economies portfolios,” according to the report.
Nicholas Antonio T. Mapa, a senior economist from ING Bank N.V. Manila, said in an e-mail last month: “The key takeaway from this study is that renewable energy projects are profitable and perhaps something we can pursue with more concerted effort given the benefits of pursuing this energy strategy.”
AAA Southeast Equities, Inc. Research Head Christopher John Mangun said: “There is a lot of speculation in RE companies, mainly driven by the advancement of technology, potential mass adaptation, and the shift in government policies. This is despite the fact that most RE companies have not reached profitability.”
Mr. Mangun said that fossil fuel companies, on the other hand, are perceived to be “stable as the industry was already at its peak in terms of demand and scalability, and did not offer much growth.” — Angelica Y. Yang
