EU elections: Will far-right rise drive renewable energy stocks to grow?

On Monday, French stock markets were impacted by Emmanuel Macron’s call for early elections following the heavy defeat of the far-right Révené nationale (NR) party in the EU parliamentary elections. In response to the news, the benchmark CAC 40 index fell 1.4%, with shares of major renewable energy companies such as Engie SA, Voltalia SA and Neoen SA falling between 1% and 5%.

Far-right parties are taking advantage of their power, causing social dissatisfaction

With far-right parties gaining significant power in the EU elections, the potential policy change could significantly impact certain industries, such as renewable energy companies. Many of these far-right groups see the transition to green energy as an over-ambition of the European Union. They argue that climate regulations contribute to rising inflation and raise the cost of living.

Far-right groups argue that current environmental policies place significant financial burdens on citizens and industry, attributing rising inflation and high costs of doing business to the achievement of emissions targets. Discontent among businesses and households has provided a boost to far-right parties, increasing their populist appeal and leading to a noticeable increase in public support. The increased presence of far-right parties in the EU Parliament is likely to slow down the implementation of the Green Deal by intervening in policy-making processes.

Risk of limiting investments in renewable energy sources

2023 was a difficult year for the renewable energy sector due to significant inflation and rising interest rates. Unlike fossil fuel companies, which benefited from the war-induced rise in oil prices, companies focusing on green energy faced difficulties. These companies often have high capital expenditures, which makes them particularly vulnerable to high interest rates and inflation. Many renewable energy companies depend on government subsidies through renewable energy auctions. However, these auctions were characterized by low maximum prices, which led to the failure to allocate projects in 2023.

Far-right parties have expressed concerns that the green transition will reduce Europe’s competitiveness vis-à-vis major economies, especially the United States and China. Their influence on policy could mean less investment in the renewable energy sector, requiring continued government support and allocation of funds.

According to a report by the European Central Bank: “The European Commission has estimated that additional investment of €620 billion per year will be needed between 2023 and 2030.” This amount is approximately 3.7% of EU GDP in 2023.

On the other hand, watering down environmental regulations could benefit fossil fuel producers like TotalEnergys by reducing the costs of going green and lowering mandatory energy efficiency standards.

Rebound on renewable energy stocks

The European Renewable Energy Price Index is down 24% on the previous year and is down 16% year-to-date, while the Euro Stoxx 600 index is up 13% on last year and is up 9% this year.

However, shares of some renewable energy companies have surged since March.

Shares of Spanish energy company Iberdrola are up 11% in the past three months, shares of Finnish energy company are up 17% and shares of Danish renewable energy company Orsted are up 14%.

The recent recovery in this sector was reinforced by expectations of interest rate cuts by central banks and positive first quarter results. This return signals renewed investor confidence and suggests that despite recent challenges, the long-term prospects for renewable energy remain promising, particularly given the potential for supportive monetary policy and continued positive financial performance.

The renewable energy sector is driven primarily by the macro environment, not political influences. While the growing power of the far right may put pressure on the sector due to surprising election results, it is unlikely to change the long-term global trend. Renewable energy’s resilience to policy change highlights its importance as a sustainable solution for the future, with continued growth expected as environmental concerns and technological advances drive the shift to cleaner energy sources.