Green Winners, Losers Easier to Spot

"Politicians across Europe are sharpening their sometimes vague climate policies. While wind and solar stocks are clear winners, the screws are also tightening on industries that have been dragging their heels or selling green dreams.

On Thursday, the European Parliament and European Union leaders reached an agreement to raise key sustainability targets. This is an important step in the process of turning ambitious goals set out by the European Commission into law.

By 2030, renewable energy will make up at least 42.5% of the bloc's overall energy consumption, according to the plan. Last year, wind and solar generated 22% of EU electricity and overtook gas for the first time, according to data from the think tank Ember. Also on Thursday, the U.K. government released its updated green strategy, announcing more investment in charge points for electric vehicles among other measures.

The new EU goal is slightly higher than some governments were pushing for and strengthens the case for investing in renewable energy infrastructure. Shares of European clean-energy companies were higher in Thursday trading. Top wind-turbine producer Vestas Wind Systems was up 5%, while SMA Solar Technology, a smaller German company that makes inverters for solar farms, rose 22.6%. Nel, McPhy Energy and ITM Power, which make electrolyzers used to generate renewable hydrogen, all gained.

But the new plan also singles out industries that have been slow to make their businesses more sustainable. It wants half of all energy used to heat and cool buildings to be renewable by the end of the decade and has set mandatory annual increases at the national level. If the extra cost of making buildings greener can't be passed on to tenants or offset with subsidies, it will hit the profit margins of commercial real-estate landlords.

Transport and industrial companies also need to increase their use of renewable energy or shift to using more clean hydrogen. That may add to their costs, but it will also stimulate demand for the nascent renewable hydrogen industry. This month, Brussels said it would set up a European Hydrogen Bank to subsidize the higher cost of producing carbon-free gas.

In a controversial move, the EU recently proposed that hydrogen made using nuclear power be recognized under new renewable fuel targets. British Prime Minister Rishi Sunak also said the U.K. will "revive nuclear" as part of Thursday's energy overhaul.

Renewable-energy supply chains may find it hard to cope with all the extra demand created by such targets, especially for solar-power components. In the EU as in the U.S., manufacturing has been hollowed out in recent years by Chinese imports and needs to be rebuilt. Permitting delays are another barrier. The EU wants to make renewable energy projects of "overriding public interest," meaning they will be harder to stop through legal action.

Concrete details about how countries plan to get to net zero are slowly making it easier for investors to piece together how the shift to cleaner sources of energy will affect different industries. This will include casualties. Shares in U.K. power company Drax fell 10% at the open Thursday, before recovering, after its plans for a biomass carbon-capture project didn't initially qualify for government subsidies.

More-precise climate rules will increasingly have downsides too." [1]

1. Green Winners, Losers Easier to Spot
Ryan, Carol.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 31 Mar 2023: B.12.