Attractiveness of clean energy stocks in Europe

The Ukrainian conflict has put in evidence the need to understand if oil and gas shocks increase the attractiveness of clean energy investments in Europe. If that is the case, clean energy investments are both the solution to the end of the month problem in Europe and to the end of the world problem due to climate change. Using monthly data for the period 2008–2021, we pinpoint supply and demand shocks in the oil and gas markets affecting Europe and investigate their effects on clean energy stock returns using a structural VAR model. We complete the analysis by studying the connection of these shocks with geopolitical risk. Our findings show that, clean energy stocks are positively impacted by a negative shock in the gas supply to Europe but are not significantly affected by a negative shock in global oil supply. Moreover, clean energy stocks are positively influenced both by oil-specific and gas-specific demand shocks. Finally, the favorable impact of economic demand shocks on clean energy returns lasts more in the oil price model than in the gas price model. Regarding geopolitical risk, we find a strong connectedness, particularly with shocks in the European gas market. These findings imply that, in Europe, clean energy is indeed a substitute to oil and gas in times of crisis. We are then likely to observe an increase in clean energy returns as prices of fossil sources spike.