Renewable Realities: 2023 Sees a Sharp Slide as Costs Surge

Renewables slide sharply in 2023 as costs surge
By Michael Hewson (Chief Market Analyst at CMC Markets UK)

If 2022 was the year that saw renewables consolidate after the surge to record highs in 2021, 2023 has been a more sobering affair with the sector sliding back to its lowest levels since August 2020 with the prospect of meaningful returns further away than ever.

While the political narrative is of one where investment in wind and solar power, along with other renewables is the right thing to do for the planet, the reality is the cost of doing so is proving ruinously expensive given the huge use of basic resources in the development of the technology as well as the delivery of the infrastructure.

Even now politicians try and push the misleading narrative that renewables are the cheapest long-term option, trying to sell the idea with political soundbites of the kind that the UK can be the Saudi Arabia of wind, when the reality is closer to being the Saudi Arabia of hot air.

Investors are already cottoning on to the shortcomings of the current strategy when it comes to the delivery of returns, and the distinct lack of them, compared to the availability, reliability and relative cheapness of current fossil fuel alternatives.

The key element here is reliability, given that for all the benefits of solar and wind it all counts for nothing when the wind doesn't blow and the sun doesn't shine and the battery storage technology doesn't exist to be able to store and release the power required when needed.

It is this missing link along with the ability to cover the sunk costs required to build the extra infrastructure required to support new wind and solar farms, along with the upgrades to infrastructure required to deliver the power to where it is needed.

This is an area that so-called climate activists prefer not to dwell on, as well as the huge environmental damage that is likely to occur from the mining of huge amounts of copper, lithium, salt, sodium and other rare earth materials which are located in some of the most far-flung corners of the globe.

 

CMC Oil & Gas, CMC Renewable Energy basket since 2021

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napiSince the renewables basket reached its peaks in early 2021 the reality of having to deliver on the optimism of the transition to renewables has collided with the reality of trying to do so. Even the Biden administrations huge tax breaks to encourage the transition haven't been enough to help the sector as the rising costs of raw materials collides with the reality of trying to deliver.

To be fair the uncertain geopolitical environment hasn't helped with the Russian invasion of Ukraine in 2022, followed by the horrific events in the Middle East which has served to keep oil and gas prices quite high relative to their long-term mean.

This is especially true when it comes to gas prices which are still well above their pre-Covid levels and unlikely to return there in the face of high demand, as the dirtier options of coal get pared back further.

As we look towards 2024 the renewables sector is likely to continue to be a challenging environment as the challenges facing it become more apparent when it comes to the huge amounts of raw materials required to deliver on net zero targets.

With the pressure from climate activists unlikely to relent as they continue to push unrealistic policy positions, which offer little in the way of solutions to high energy prices, politicians continue to pander to their infantile positions, preferring to pander to that zeitgeist rather than focus on the world as it is now. Instead, they choose to focus on how they would like the world to be, rather than showing the pragmatism and leadership required which would help hard pressed consumers and businesses who are having to cope with sharp increases in energy costs.