Wind is set to slow while solar soars

• 135GW solar and 114GW wind installed globally in 2020
• But solar will hit 145GW in 2021 as wind slips to 80GW
• Challenges weigh on wind firm shares after strong 2020‍

One word summed up 2020 for clean energy companies: resilient. There is no doubt that renewables has been a good sector to be in during the pandemic.

Indeed, the International Energy Agency has shown this week that renewables were not only resilient in 2020. They surged. At least 280GW of capacity was added worldwide in 2020, up 45% compared to 2019. This was powered by heavy-hitting contributions from solar (135GW in 2020) and wind (114GW)

The IEA said renewables are the only energy sources for which demand rose in 2020 despite Covid-19. Annual solar installations grew 23% year-on-year last year, as installed wind capacity almost doubled from the 60GW completed in 2019. Policy deadlines in China, the US and Vietnam all played vital roles in achieving that record growth.

But that doesn't mean it’s time for retail investors to indiscriminately plough money into wind and solar companies.

The IEA forecasts for installed capacity in 2021 and 2022 show solar and wind are on very different trajectories. Solar installations are set to grow year-on-year, to 145GW in 2021 and 162GW in 2022. These are due to account for 55% of the total renewable energy growth in the next two years, because of lower investment costs and ongoing policy support.

By contrast, the IEA’s forecasts for wind as less positive.

The 2020 installation figure was boosted by spectacular growth in China – almost 72GW added in just one year, or 1.4GW completed on average each week – and this won’t be repeated in 2021 or 2022. Global wind installations in 2021 are set to be 80GW, or 30% lower than last year, and slip further in 2022. That would still make 2021 the second busiest year in wind’s history, but also puts the sector a distant second to solar in the clean energy race.

You can real that as a positive, a negative or a bit of both! But whichever you choose, these figures do contain an important message for wind companies.

Renewables is a sector that has emerged relatively unscathed from the pandemic, but that does not mean that investors will put money into clean energy companies willy-nilly. They will look at the growth prospects in the parts of the renewables sector where companies are operating – and the fact is growth prospects in wind are slower than in solar.

Share prices

This reticence about wind’s growth prospects has started to show in the share prices for some of the sector’s top companies, after their first quarter results. Many have been held back due to concerns about profitability and growth.

Let’s look at some of the share price falls in the fortnight to Monday 10th May. The starting point for all these drops is Monday 26th or Tuesday 27th April.

Over that period, Vestas shares fell 11% after it announced lower profitability than expected; Siemens Gamesa’s fell 19% after it lowered earnings guidance; and Nordex’s fell 24% before it revealed a slimmed-down first quarter profit margin on 11th May. This shows that turbine makers continue to face tough conditions because of squeezed profits and Covid-19 disruption.

The picture is similar for utilities and developers.

Ørsted’s share price fell 13% over the same period, in part due to a forecast loss of up to €400m that it may have to take due to cable damage at offshore wind farms in Europe. EDP Renewables saw a 10% fall too, while Northland Power dropped 17% over the same period. We highlight the last two for no reason other than we wanted to check if they show the same trend.

What does this all mean?

Simply, investors won’t plough money into every wind company just because renewable energy is seen as a safe haven in a tough market. That’s last year’s story. In 2021, investors are being more selective about which renewables firms they back, and there are clearly concerns about the long-term prospects for some companies in wind.

This may also show that investor demand for shares in wind companies is easing off after an exceptional 2020.

‍