Stock Market Crash Warning: Don’t Get Caught Holding These 3 Renewable Energy Stocks
The Biden administration began with a great deal of enthusiasm around renewable energy stocks. Shares of firms in wind, solar, hydrogen and electric vehicles (EVs), among other green sectors, soared on hopes on significant government stimulus. And, for a time, that thesis played out. The Inflation Reduction Act was a landmark piece of legislation that offered unprecedented subsidies and support for various renewable energy projects.
However, the initial excitement has worn off. Much of the money has already been spent, and the prospect for future grants is less encouraging due to gridlock in Congress and upcoming elections in November.
Additionally, renewable energy often has pretty thin profit margins and new projects tend to rely on access to low interest rate loans for financing. Now that interest rates have soared, it’s getting far more complicated to fund green energy.
As a result of these factors, renewable energy stocks plummeted in 2023. Some will bounce back as there is a clear long-term trend toward cleaner energy and the reduction of carbon emissions. However, these renewable energy stocks to avoid may be too far gone to make a significant recovery.
Orsted (DNNGY)
Orsted (OTCMKTS:DNNGY) is one of the world’s largest wind power developers. It currently has 24.1 GW of installed and under construction power generation capacity.
Orsted shares plunged in 2023 thanks to a reassessment of the firm’s project portfolio. The company warned of up to $2.3 billion in impairments on its U.S. offshore wind portfolio. It also cautioned about more difficult industry conditions and financing prospects going forward.
The company has reduced exposure to the markets in Spain, Portugal and Norway. It is slashing 800 jobs, and it has suspended its dividend given its challenging financial position.
Offshore wind was always somewhat of a dicey economic proposition as it is a high-cost source of power. It has exceptionally high upfront construction costs, and there are significant associated costs such as building transmission lines out to the facilities. These offshore wind developments were viable with low-cost capital and heavy government subsidies. However, s subsidies dry up and interest rates soar, Orsted’s economic model is in serious doubt. At this time, DNNGY is one of the renewable energy stocks to avoid.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) is living on borrowed time. The struggling hydrogen power firm has been in business since the 1990s. Despite decades of best efforts, the company has not reached consistent profitability or generated any meaningful value for its shareholders.
PLUG stock peaked at $1,500 per share (split-adjusted) in 2000 when hydrogen power solutions were supposedly right around the corner. Fast forward to 2024 and Plug Power has lost money each of the past ten years while showing no meaningful operational momentum. In fact, its losses have ballooned, with Plug Power managing to generate a shocking $1 billion in operating losses in 2023 alone.
That said, PLUG stock did rally from $2 to a peak of more than $60 in 2021 as traders bid up all sorts of speculative tech and green energy companies. Now that easy money has disappeared and investors are casting a more wary eye toward unproven green energy solutions, PLUG stock is in freefall.
The hype is wearing off for Plug Power. The firm was issued a “going concern” warning, given its huge losses and flimsy balance sheet. The company is attempting to cut costs, but the planned reductions look like a drop in the bucket compared to its operating losses. PLUG stock seems likely to plunge to fresh all-time lows going forward.
Sunrun (RUN)
Sunrun (NASDAQ:RUN) is a solar technology company. It offers a broad product line-up, delivering both solar power generation and storage solutions through direct-to-consumer channels and third-party affiliates.
Years ago, RUN stock used to trade at a lofty valuation. It seemed like an obvious winner amid the government’s subsidy program for domestic solar power. As the total market grew, analysts expected Sunrun to enjoy a healthy piece of a larger pie.
However, subsidies are starting to run out, and the government has launched inquiries into the solar rooftop installers specifically. Now Sunrun’s investors must face a grim reality: the company has huge operating losses and a shaky balance sheet.
Sunrun lost almost $2 billion from operations over the past 12 months. And the company paid out an alarming $653 million in net interest expenses last year. This suggests that Sunrun can’t simply shrink its way to profitability, as its financial obligations are gargantuan. With the industry now in a slump, the sun is about to set on RUN stock.
On the date of publication, Ian Bezek did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
