Renewables win hands down over fossils, with clean-energy power portfolios outperforming those based on fossil stocks with “both higher returns and lower volatility” in the last decade, according to a new report published by the International Energy Agency (IEA).
The report, produced with the UK’s Imperial College Business School, found that renewable power has seen a 367% greater total return than fossils since 2010, with advanced markets’ returns have outweighed oil, gas and coal by 2,300% in the same period, and 22% higher returns in developing economies.
Studying shares performance of publicly-traded renewable energy and fossil fuel companies in four categories for the report – Global Markets, Advanced Economies, Emerging Markets & Developing Economies, and China – the IEA report highlighted that its analysis revealed “potential diversification benefit of renewable energy, with the Covid-19 disruption highlighting greater resilience”.
While the report headlined that its analysis pointed to a “broader structural trend” in the global energy markets, it carried the warning that “large disparities persisted” between government targets and total investment in renewables, despite clean-energy’s outperformance of fossils.
"This report points to clear financial benefits from investing in clean energy transitions, an important step towards mobilising higher levels of investment from the capital markets,” said Tim Gould, head of energy supply outlooks and investment at the IEA.
“But much more still needs to be done to link sources of sustainable finance with the areas of greatest need, especially in emerging market and developing economies.”
Charles Donovan, executive director of the Centre for Climate Finance & Investment at Imperial College Business School, said: “Our research demonstrates that all over the world renewable power has outperformed fossil fuels.
“It's been the same story for more than a decade, yet total investment is still lagging. National regulators, particularly in the US, must get to work on the reforms needed to level the playing field for clean energy investors.”
The report concluded renewables portfolios had “a superior risk / return profile in both typical market conditions and during global economic imbalances”, Gould added.
“Most sustainable investment instruments in the market today do not have the breadth of these constructed portfolios and are unable to accurately reflect renewable energy returns versus fossil fuels over such an extended period,” said the authors.
The underscored that governments, corporations and the financial community “all have roles to play in setting conditions, developing projects, and providing the capital needed to address the investment challenge in clean energy”.
The IEA is set to produce a special study in collaboration with the World Economic Forum and the World Bank to outline recommendations on accelerating the financing of energy transitions in developing economies.