Renewable energy stocks struggled in September, but electric power bucked the trend

After months of speculation about when the Federal Reserve would cut rates, investors appeared to take a “sell the news” approach in September. Renewable energy projects that are often financed for decades based on interest rates should become more economical as rates fall, but stocks have fallen when rates have fallen.

According to data provided by S&P Global Market Intelligence, Power socket (PLUG 0.83%) rose 20.2% in September, Blooming energy (BE 3.90%) decreased by 11.3% and Sunnova Energy (NEW -0.94%) fell 12.3% in the biggest moves for the industry.

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The lost momentum of renewable energy

One of the reasons renewable energy stocks are declining is that they are not getting the boost from artificial intelligence (AI) demand. In recent weeks, it has been revealed that major tech companies have signed deals with nuclear energy providers to build power plants for their data centers, not deals with wind, solar and hydrogen energy providers as they did in last.

If the tech industry eschews renewable energy for nuclear power, it could reduce demand for large projects in the long term. That said, nuclear plants are a few years away from reaching production, so there may be a need for short-term solutions that renewable energy can provide.

The good news for Plug Power

Several developments have led Plug Power to outperform the wider renewable energy market. First was a $10 million grant to spearhead the development of medium- and heavy-duty refueling stations in Washington state. The Energy Department is spending $62 million to accelerate next-generation hydrogen technologies, which will be one of the biggest prizes.

Plug Power also announced that it has won a contract to provide technical assessment for a 25 megawatt electrolyser project in Portugal. This is not a final contract, but the deal is expected to be decided soon, with it expected to be operational by the end of 2026.

The bad news of renewable energy

Protectionism also seems to be a trend we will see more of in 2024 and beyond. China’s cheap solar panels and batteries have come under pressure with tariffs from the US and European governments, and those protections are likely to continue. This could make it difficult for companies like Sunnova to provide facilities economically.

For Plug Power and Bloom Energy, the protections could limit the size of the market they can tap in the long term, which is significant because China is the world’s largest producer of renewable energy.

The financial situation is not improving

The fundamental problem for all these companies is the lack of profitability. It’s great to have a large addressable market or growing revenue, but if there are losses, it’s still relying on the market to continue funding the business. A drop in share price can cause a downward spiral that makes it difficult to sustain the business model.

NOVA Free Cash Flow Data by YCharts

The recent bankruptcy of SunPoweralong with the earlier collapses of SunEdison and dozens of clean energy producers, it’s proof that profits win out in the end. This is what will ultimately prevent me from buying these stocks in the last moves. Bloom Energy, Plug Power and Sunnova have all shown they can grow, but have not proven the ability to turn a profit. Until they do, I’ll stay on the sidelines.