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Renewables’ alpha status lifts transition hopes

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Renewable energy has finally arrived as one of the premier sectors in equity capital markets. All it took was a global pandemic.

Since March, renewables have become one of the most attractive industries to equity investors, along with biotech and software.

Awareness of environmental, social and governance issues has pushed fund managers to bet on the sector. Ways to play it used to be scarce, and the industry has had its casualties. But there are now more pure play companies for investors to choose from, thanks to a series of IPOs.

Shares in French green energy company Neoen have climbed more than 40% this year — against a 20% fall in France’s CAC 40 index.

Equity-linked debt investors are also getting in on the act, with the recent development of green convertible bonds, such as this week’s $500m deal from US renewables financier Hannon Armstrong.

But it is not just pure plays being rewarded. The market is also willing to back old school energy companies that are cleaning themselves up.

This week, RWE, which operates some of the biggest coal mines in Europe and has long been a target for environmental activists in Germany, raised €2bn to fund its pivot into renewable energy assets, as part of a pledge to go carbon-neutral by 2040.

The sale attracted €6bn of demand, highlighting the appetite for renewable stories, even those with patchy records. RWE’s stock has rebounded 40% from its lows in March.

This appetite is an encouraging sign that as the fossil energy system begins to creak towards the great transition to clean power, equity investors will be ready to finance it. They can also make some serious alpha doing so.

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