Why are renewable energy stocks up?

Russia’s invasion of Ukraine threw the energy sector for a loop this week. The United States announced that it will not import Russian oil. In addition, many businesses said they will divest or cease buying from Russia. As a result, significant pressure is on oil prices.

It follows that oil prices, and thus oil stocks, are up. Increasingly cashed up oil companies are leveraging higher oil prices to move into alternative fuels, or passing that cash on as hefty dividends. [READ 3 OIL STOCKS WE’RE BUYING].

On the other hand, investors also turned to the renewables sector as the price of gas seems increasingly untenable. Residential solar installer Sunnova Energy International’s (NYSE:NOVA) share price rose by 18.5%. Canadian Solar (NASDAQ:CSIQ) was up by 15.8%, whereas hydrogen stocks Bloom Energy (NYSE:BE) and Ballard Power Systems (NASDAQ:BLDP) were up by 15.1% and 16.4%, respectively.

Why we care

Today, the global energy market is the primary driver, with Brent crude oil prices jumping 3.9% in trading to $128.02 per barrel this afternoon. Russia produces about 11% of the world’s oil. Therefore, if deliveries are interrupted for a considerable time, consumers will pay more.

Even though solar and hydrogen energy are long-term solutions rather than short-term, they’re a logical destination for investors seeking alternatives to oil. It’s also conceivable that lawmakers will see this as an opportunity to boost U.S. energy production, but no legislation has been passed yet on that front.

It’s clear that the market likes clean energy stocks right now, but it’s worth noting that commodities like nickel, copper, and steel are up considerably this week, as well as oil. In fact, these commodities are inputs to renewable energy projects. If prices stay high, this will be a big problem for profitability.

What’s next for renewable energy stocks

We’re long-term bullish on the renewable energy sector, but we don’t think now is a good time to invest. Renewable energy stocks are up simply on the expectation that high oil prices will lead to better business conditions for solar and hydrogen firms in the future. If oil prices come down, this may not be true.

Instead, look at how businesses have grown revenue and profits over time. SunPower and Bloom Energy, for example, seem to have good plans with increasing sales and margins. That said, we’re not buying the recent rise in their stock prices. 

What to look for after Russia’s invasion of Ukraine is the response from U.S. policymakers. Policymakers will likely reinstate the recently reduced subsidies, including the investment tax credit extension. That would be highly beneficial to the business, but any policy adjustments would take years to impact earnings.

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