Shares of renewable energy companies are still steady one year after oil price plunge

When the price of oil started to fall or plunge in June 2014, it was not long before the market for renewable energy started feeling the pinch.

Although not a substitute for oil, renewable energy would rather that the price of oil be sustained on the high side. For one, a low price for oil would result in reduced demand for renewable energy particularly where oil has much more uses and is more versatile. By the way, the technology and use of oil and oil derivatives is incorporated in nearly every industrial sector of a modern economy.

This brings up the question: how have the stocks of renewable energy companies fared since oil started to plunge in 2014? A cursory look at three alternative energy companies with very high market capitalization could tell a good picture.

1. Green Plains Inc. (NASDAQ:GPRE)

Green Plains Renewable Energy produces Ethanol fuel. It ships about 1 billion gallons of ethanol per year.

2. JA Solar Holdings. (NASDAQ:JASO)

This is the world's largest solar cell producer. The company is based in the People's Republic of China. JA Solar employs more than 1, 400 people around the world.

3. Ballard Power Systems. (NASDAQ:BLDP)

Ballard Power Systems, Inc. is a global leader in PEM (proton exchange membrane) fuel cell technology. Ballard has designed and shipped close to 150 MW of hydrogen fuel cell technology to date.

The graph below shows that on a one-year trend, the stocks of these three global renewable companies on the NASDAQ have recently been holding steady. The graph shows the rate of change of the share prices. Market enthusiasm for these stocks have not dipped very much.

Shares of major renewable energy companies are still steady.

Source: Google Finance.

Except for Ballard Power Systems, whose price has fallen sharply by about 50% since April 2014, possibly due to the high price of producing fuel cells or constrained demand now that low oil prices might make its major customers, the automobile and fleet services companies, be thinking of sticking to cheap oil, one can say that the market is still hopeful that low oil prices will not last.

Oil prices plunge again as global Iranian oil expected

Oil prices have started a plunge at the close of the markets yesterday.

This is following the announcement of a framework reached between the United States and Iran on its nuclear program. As it is, it is certain an agreement has been reached and Iranian oil will fuel the glut that is already a custom of the market.

Brent crude responding to the expected injection of Iranian oil

Source: Investing.com Brent crude data

The fighting in Yemen had pushed up oil prices at the start of this week. It seems expectations of reviving oil prices will have to be for the future time. Too bad for oil.

Oil price uncertainty (1): Monetary and fiscal policies might arrive too late to be effective.

The slightly more than fifty percent (50%) fall in oil prices since June 2014 seems etched in stone. Oil prices are dipping. To shore up prices, oil exporters are relying on supply side economics. The market is not well understood. When major OPEC countries are sticking to their guns rather than implement expected production cuts, it could only be opined that uncertainty rides the market.

The steep fall of oil prices since June 2014!

Source: Investing.com

For the past nine months, the news is beset with falling oil prices followed by reduction in energy bills – gasoline prices have fallen, fuel prices at the stations have fallen, prices of non-durable goods have also followed suit. Consumers seem to be having a good time. Income after taxes and transfers, what is called disposable income, is now worth more. Globally, the fall in oil prices have benefited consumers. It is estimated that the increase in global GDP due to a decline in oil prices should be around 0.7-0.8%.

But it’s not alright on the economic front for both oil importing and exporting countries despite the burgeoning demand. The sweet story resides in the short-term. What really matters is the medium and long-term effects of a sustained and unrelenting fall in oil prices. What would a Central Banker do if reducing costs of production passes through declining inflation?

According to Raju Huidrom, “the U.S. Federal Reserve has typically chosen to respond vigorously to inflation increases triggered by higher oil prices but has responded less to unexpected declines in inflation following oil price declines.” Expected monetary expansion are already been put in place.

The European Central Bank’s quantitative easing program will give more liquidity to the banks and make the prices on corporate assets rise while their yields fall, therefore kicking in expected increases in investment. It is rumored that Israel might start a quantitative easing program soon.

But the problem, as foreseen in the recent OECD’s interim assessment report that was released last week is that expected investment increases might not be in the right channels. Increased capital expenditures and increased consumption of durable goods is a monetary policy goal but the market might not give them victory on a platter of gold. According to the OECD, the market is not operating on fundamentals.

Therefore, it is advised that fiscal policy should be used to strengthen and safeguard monetary policy. Reduction in the budget deficits of most developed countries and the BRIC countries would be desirable. Spending cuts in government are not easy to implement. It takes a long time. It takes strong political willpower. Even Nigeria, one of the foremost oil exporting member of OPEC, has been rumored to warn civil servants that to kick in spending cuts, they might have to accept some retrenchment.

If oil prices continue to remain adamant, the market will have to surrender to uncertainty. Except OPEC countries like Saudi Arabia agree to production cuts that should prop up oil prices.

Next in the series: Oil price uncertainty (2): Attired as a bear.