Clean energy became the shining star of 2020, in contrast to the share value of fossil fuel companies which hit rock bottom from the economic crisis and the drop in oil prices following the novel coronavirus (COVID-19) outbreak.
Last year, the oil and gas industry experienced its worst year in history, which was exacerbated by the spread of COVID-19. The outbreak amplified the risk volatility of oil and gas stocks amid rising economic risks, leading to massive asset write-downs and bankruptcies in the industry. The traditional energy sector struggled to hold on to investors, as reflected in the significant loss of stock market valuation in Europe and North America.
The energy sector ended the year coming in last in the Standard and Poors 500 Index (S&P 500), according to the Institute for Energy Economics and Financial Analysis (IEEFA). The sector's share in the S&P 500 Index dropped to 2.3% at the end of the year, losing over a third of its value from 2019, even as the index as a whole rose by 18%.
Of the leading companies, oil firms lost the most value. Last year when Brent oil prices fell to around $23 per barrel, the world's largest publicly-listed company ExxonMobil lost more than 40% of its stock value as of Dec. 31 and was booted out of the Dow Jones Industrial Average Index on Dec. 31, 2020.
BP's stock value saw a 45.9% decline in 2020, followed by Shell at 44.1%, Chevron with 30%, and Total with 28.3%.
Investors retreated from oil companies due to increased economic risk associated with volatile oil prices, lower returns and demand slump.
European and North American oil majors slashed their dividend payments and wrote down assets, totaling $145 billion by the first three-quarters of 2020.
According to an analysis by Norway-based research firm Rystad Energy, bankruptcy filing by oil and gas companies in North America to banks in 2020 reached an all-time high, exceeding $100 billion.
Under the current price environment, Rystad predicted that bankruptcies would increase.
The collapse of oil prices destroyed the stock value of shale companies and the industry suffered the largest financial losses.
The financial performance of the shale gas industry in North America for over a decade became even more fragile with the epidemic. Shale oil and gas producers had to cut their capital expenditures by 45% in 2020 compared to 2019 due to the financial crisis. Despite the cut in spending, at least 27 companies were unable to avoid losses.
- Biden's victory boosts confidence in renewable companies
During the year, renewables were the only growing energy source. The share of renewables in electricity grew by 7% globally in 2020, while fossil fuels shrank, according to the International Energy Agency (IEA).
Clean energy companies became the new energy giants and clean energy stocks reached their highest levels since the 2008 financial crisis.
Joe Biden's US presidential win and the European New Green Deal boosted investor confidence in clean energy stocks.
Among the most important developments that increased the market value of renewable energy companies were Biden's climate plans, which aims to decarbonize the US power sector by 2035 and spend $400 billion on clean energy research and development over the next decade. The EU target of a net-zero recovery from COVID-19 by earmarking 30% of its €750 billion EU Recovery Fund, and its €1.1 trillion budget to enable the transition to a green economy was also a major driving force for renewables.
The market valuation of clean energy giants surpassed oil companies. Florida-based NextEra, the world’s largest renewable energy utility, overtook ExxonMobil in early October.
As the champion of the energy transition, Danish renewable company, Orsted, saw shares increase by 83% as of Dec. 31, surpassing the value of BP.
Italian Enel, Europe's largest utility with a market capitalization of $103 billion, was better positioned than oil major Eni.
- 10 million electric vehicles on the road
According to the IEA, which predicts that the number of electric vehicles in the world will reach 10 million by the end of 2020, electric vehicle sales will outperform all other passenger type vehicles during the epidemic period.
Tesla, the most important player in the electric vehicle market, surpassed traditional auto companies and oil giants in the S&P 500 in 2020. The company's shares rose by 740% as of Dec. 31, 2020, and the company’s market value exceeded the total value of the nine largest automakers in the world.
As of Jan. 7, 2021, Tesla’s market value exceeded $800 billion, making it the fifth most valuable company in the world, and valued more than Exxon, Chevron, Shell, Total, BP, Eni combined.
By Firdevs Yuksel and Nuran Erkul Kaya