Renewable energy stocks and risk : (systematic risk factors in the renewable energy sector)

Abstract

The renewable energy sector is an industry that expects tremendously growth in years to come. This opens interesting investment opportunities for investors and poses challenges for government and legislators as to how to best support the change to a low-carbon emission energy mix. In this study, we have explored the risk and returns characteristics for stocks, focusing on macroeconomic systematic risk. The stock returns from renewable energy sector was regressed on the macroeconomic variables: S&P500, VIX, nominal interest rates, real interest rates, inflation, industry growth, oil price returns, the term structure and credit spreads. Our findings show that returns in renewable energy stocks are affected by the S&P, the nominal interest rates and the oil price returns. The risk premiums varied greatly within our sample, which made us come to the conclusion that the companies in renewable energy sector are far from a homogenous group of companies. This challenges the choice of strategy potential investors should employ in their portfolio optimization.