Bets on wind energy stocks are profitable for hedge funds

Hedge funds have profited from a series well-timed bets on wind energy stocks. Some are betting that the sector will continue to suffer.

Marshall Wace, Qube Research & Technologies and other quantitative traders have all made millions in profits this year from the sharp drops in share prices in wind industry stocks like Siemens Energy and Orsted.

The short bets are indicative of a general lack of enthusiasm towards green energy stocks despite the huge tax credits and subsides offered by governments in Europe and the US to renewables companies.

Wind energy companies usually agree to long-term contracts which fix the price of their energy. High inflation has increased their costs while high interest rates make it harder to raise funds for expensive new projects.

S&P Global Clean Energy Index, a collection of 100 of renewables’ biggest stocks, surged during the early stages the pandemic. It reached a high in early 2021. It fell dramatically later that same year, and after further losses in 2022 it has fallen another 35 percent this year.

James Smith, the manager of Premier Miton Global Renewables Trust said that there was a “very strong correlation” between the interest rate and the performance index. He added that individual company problems were also weighing down on the sector.

He added that “interest rates may account for up to 75 percent of the problem, while the remainder is perceived as bad news.”

Since a while, short sellers have increased their bets on green energy stocks amid rising expectations that higher borrowing rates would cause problems in the industry.

In recent months, they have been vindicated. Orsted, world’s biggest offshore wind developer, announced this month that it would abandon two projects off the coast of New Jersey because of a rise in the cost for financing and supply. Shares fell by 26 percent on the same day.

Orsted announced on Tuesday that it had restructured its management.

The market capitalization of the company is now 122bn (18bn), or about a fifth of what it was in early 2021, when green stocks were at their peak.

According to S&P, the proportion of shares shorted by the company began increasing around March of this year. It reached a peak of 1.64 percent on November 3.

Siemens Energy shares have dropped about 56% since the end of June, following a series of disappointing reports relating to technical issues with wind turbines manufactured by Siemens Gamesa. The company’s shares dropped by 35 percent on October 26, when it announced that it was in discussions with the German Government about financial assistance to help strengthen its balance sheet.

The shares rose by 2 percent on Tuesday, after the German government announced that it had agreed to provide €7.5bn in state guarantees to the firm as part of an €15bn bailout package.

Short sellers also target Vestas Wind System, the Danish wind turbine manufacturer, whose stock is down 17 percent this year. However, they rose last week, after it announced that it expects to be profitable in this year.

As a sign that some traders don’t think the worst has passed, nearly 14 percent of Siemens Energy stock is being shorted. This is up from 8 percent at the beginning of the year.

Renaud Saleur is a former trader with Soros Fund Management and the head of Anaconda Invest. He said he covered his short positions on Siemens Energy and Orsted at the beginning of November, and now owns Orsted.

He said, “We would like to believe that all the bad information is now out there.” He added that governments will have to change the terms offered to wind developers in order to launch projects. . . “We have reached our peak”.

Marshall Wace refused to comment. Qube has not responded to our request for comment.