Renewable power is outperforming fossil fuels in US and European markets, according to a new report published by Imperial College Business School.

The report, which is published in collaboration with the International Energy Agency, reveals that despite the growing profile of renewables, total investment in clean energy is still well short of the level needed to put the world’s energy system on a sustainable path.

Publicly-traded renewable power portfolios have posted significantly higher returns for investors and lower volatility over fossil fuels during the past 10 years and during the COVID-19 crisis. However, capital allocation to renewable power via stock markets is falling short of government goals due to other obstacles facing investors.

"Our results show that renewable power is outperforming financially, but has still not attracted sizable support from listed equity investors." Dr Charles Donovan Executive Director of the Centre for Climate Finance and Investment

The report is the first in a series of insights led by Imperial with the International Energy Agency to investigate the investment dynamics  in the private sector relating to the ongoing global energy disruption. The report also looks at the importance of motivating investors and the financial attractiveness of the renewable power sector. 

The authors analysed the performance of listed companies in the US, UK, Germany and France who are engaged in fossil fuel supply, versus those active in renewable power over the past 10 years. The results indicate that renewable power shares have offered investors significantly higher total returns relative to fossil fuels.

Dr Charles Donovan, Executive Director of the Centre for Climate Finance and Investment at Imperial College Business School, said: “There's real momentum gathering behind renewable power, based purely on their economic advantage.  Our results show that renewable power is outperforming financially, but has still not attracted sizable support from listed equity investors.  

“Our analysis demonstrates the challenges to investors of accessing, from a listed markets perspective, the growth potential of the renewable power sector.  Existing norms in the investment industry will have to change to provide savers and pensioners with better ways to participate in the upsides from a clean energy transition."

The full report, Energy Investing: Exploring Risk and Return in the Capital Markets is available to download from the Business School website.