U.S. President Donald Trump is rolling back clean energy subsidies, but experts say the shift to clean energy is likely to continue regardless of policy.Andrew Vaughan/The Canadian Press
Clean energy producers and investors are waiting anxiously to see what permanent changes are going to stick after a wild few weeks of vanishing subsidies and massive policy shifts from the new U.S. administration.
U.S. President Donald Trump signed an executive order on his first day in office that put more than US$300-billion in green infrastructure funding at risk. Some investors say that’s a sign clean energy producers will have to battle it out in a free market.
“What that really means is clean energy will now have to compete directly with both traditional fossil fuels and also nuclear energy on price for viability [and] return on capital invested without necessarily relying on government subsidies on their own,” says Petar Pejovic, senior portfolio manager with Pejovic Bighill Private Wealth at Wellington-Altus Private Wealth Inc. in East St. Paul, Man. “It’s going to become a more competitive market landscape.”
Opinions vary about how that will affect the sector, but changes are coming and the status quo the clean energy sector may have experienced in the past few years is done. For investors, that means assessing current investments for future viability as well as looking at new investment opportunities.
Mr. Pejovic says the U.S. is moving away from a centrally planned economy under former president Joe Biden, with government subsidies for industry, to a free market focused on company profits and in which only the fittest businesses survive.
“You’re going to get different people on different sides of the fence, for or against,” he says, “but essentially, the market force participants are saying you can’t keep throwing money into something that’s not always economically viable.”
Clean energy funds took off in 2021 following Mr. Biden’s election, with a flurry of fund launches and more than US$20-billion in global inflows that year, according to Morningstar Inc., before surging interest rates and falling valuations led to outflows from those funds.
Performance also suffered, with all but one of the eight clean energy funds in Canada posting negative three-year returns as of Feb. 3, according to Morningstar data. (Desjardins Sustainable Cleantech Fund was the lone exception, with a 2.1 per cent return in that period.)
However, Mr. Pejovic says the shift in U.S. policy “doesn’t necessarily spell doom and gloom for green projects” given the “absolutely enormous” energy demands from the U.S. that will most likely be met by a combination of fossil fuels, nuclear and green energy.
Wind farm producers and other energy projects throughout the U.S. might have it rough after executive orders from the White House paused access to government land for these projects and pulled the U.S. from the Paris Agreement on climate change. Nuclear energy, on the other hand, may be a big winner as countries and governments around the world look for a sustainable, reliable alternative to fossil fuels.
Mr. Pejovic says many people he talks to, including in government, say nuclear is the most likely option. “It’s just probably a decade out,” he says.
That could spell good news for investments in Canada, where nuclear power is already a significant energy source and in which there are plans to build small modular reactors and larger-scale nuclear facilities, particularly in Ontario.
Aaron White, vice-president, sustainable investments, at CIBC Asset Management in Toronto, also sees nuclear energy and its affiliated industries as a safe bet for future investment, highlighting that 2024 had “the largest capacity for nuclear generation in 40 years.”
“Nuclear’s going to be a big beneficiary in this new [decarbonization] pathway,” Mr. White says. “We have the most new construction projects taking place in the nuclear industry and I think nuclear is going to broadly be a big beneficiary over the next four years.”
Another area to watch, he says, is the carbon dioxide removal space. While it’s “a little early” for public market investors, “this space has reached a new maturity in terms of technological advancement as well as access to capital,” he says.
The shift to clean energy is likely to continue regardless of policy, he says.
“The cost curve has come down to the point at which renewables are competitive without subsidies,” he says, and renewables also provide energy security for regions such as Europe that rely on imports of fossil fuels.
Christine Tan, portfolio manager at SLGI Asset Management Inc. in Toronto, says staying diversified across clean energy subsectors and geographies will be key through regulatory or policy shifts.
“Clean energy is a very different landscape depending on which part of the world you’re looking at as an investor,” she says.
Investors should consider both where a company is listed and where it does business. Waste and water management companies and renewable energy utilities often generate most of their revenue in the country in which they’re listed, Ms. Tan says, but some wind turbine manufacturers sell to customers globally.
“Ideally, the companies that perhaps have the potential to generate more stable free cash flows would be the ones that have a diverse base of customers, so you’re not necessarily impacted by changes or shifts in policy in any particular geography,” Ms. Tan says.
Diversification also means having exposure to different types of renewable energy (solar, wind and hydro, for example) and different parts of the supply chain.
The opportunities in clean energy are not limited to the producers themselves, she says, but include companies that provide the necessary components such as wind turbines, solar panels and other technologies.
“The key takeaway is you need to be diversified, and you need to think globally because this is a global industry,” she says.