The strengthening of far-right factions in the EU Parliament could put significant pressure on the renewable energy sector. Major French green energy shares have already fallen amid pre-election turmoil.
French stock markets were weighed on Monday by Emmanuel Macron’s call for early elections following the humiliating defeat in the European Parliament election by the National Union party. The benchmark CAC 40 fell 1.4% on the news, while major renewable energy companies such as Engie SA, Voltalia SA and Neoen SA fell 1-5%.
Far-right parties take advantage of public discontent
As far-right parties gained significant influence in the EU elections, some industries, such as renewable energy companies, could be significantly affected by a potential policy change. Many of these far-right groups see the transition to “green” energy as over-ambition on the part of the European Union. They argue that climate regulations are fueling inflation and lowering the cost of living.
Far-right groups argue that current green policies place a heavy financial burden on citizens and industries, attributing rising inflation and high business costs to meeting emissions targets.
Dissatisfaction among businesses and households has put pressure on far-right parties, increasing their populist appeal and leading to a notable surge 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 interfering with policy-making processes.
The risk of reduced investment in renewable energy
In 2023, the renewable energy sector experienced a challenging year due to significant inflation and rising interest rates. Unlike fossil fuel companies, which benefited from the war-induced spike in oil prices, green energy companies have struggled. These companies often have high capital costs, making them particularly vulnerable to high interest rates and inflation.
Many renewable energy companies depend on government subsidies provided through renewable energy auctions. However, these auctions suffered from low threshold prices, which led to a failed allocation of projects in 2023.
Far-right parties fear that the “green” transition will reduce Europe’s competitiveness compared to leading economies, particularly the US and China. Their influence on politics could mean a reduction in investment in the renewable energy sector, which requires constant government support and funding.
According to a report by the European Central Bank: “The European Commission estimates that between 2023 and 2030 additional investments of €620 billion per year will be needed.” This amount represents approximately 3.7 percent of EU GDP in 2023.
On the other hand, easing green regulations could benefit fossil fuel producers such as TotalEnergies by reducing the costs of transitioning to green technologies and reducing mandatory energy efficiency standards.
Renewable energy stocks are recovering
Europe’s renewable energy price index is down 24% year-to-date and down 16% year-to-date, while the Euro Stoxx 600 is up 13% year-to-date and up 9% this year . .
However, shares of some renewable energy companies have risen sharply since March.
Shares in Spanish utility Iberdrola rose 11%, Finnish energy company shares rose 17% and Danish renewable energy company Orsted rose 14% over the past three months.
Recent gains in the sector have been fueled by expectations of central bank rate cuts and positive first-quarter earnings. This recovery is a sign of strengthening investor confidence and suggests that, despite recent challenges, the long-term outlook for renewable energy remains promising, especially given the possibility of accommodative monetary policy and continued positive financial performance.
The renewable energy sector primarily depends on the macroeconomic situation, not on political influence. Although the rise of far-right forces may put pressure on this sector due to unexpected election results, it is unlikely to change the global long-term trend. The resilience of renewable energy to political change underscores its importance as a stable solution for the future, and it is expected to continue to grow as environmental concerns and technological advances drive the transition to cleaner energy sources.