Renewable energy stocks have been another casualty of President Donald Trump’s tariff blitz. Even before the market turmoil, the sector was out of favor because of the change of leadership in Washington, as outlined in the recent article, Can Renewable Energy Stocks Prosper in Trump’s Second Term? A multiyear period of underperformance versus technology stocks has not helped sentiment.
One possible upside for the sector from tariffs is financing, which is likely to get cheaper if central banks cut interest rates to stimulate growth: for example, the European Central Bank is expected to reduce interest rates in the coming months.
Renewables, which are capital-intensive and rely heavily on debt financing, saw rising interest rates after the coronavirus pandemic increase the costs of projects, reduce profit margins, and slow down project timelines.
Another is that the clean energy transition in Europe is continuing apace, with more renewable production coming online.
“In Europe, building more clean energy capacity and faster has become a matter of sovereignty,” says Hortense Bioy, global head of sustainability research at Morningstar.
Orsted Exposed to Tariffs
In the view of Tancred Fulop, Morningstar utilities analyst, Danish wind giant Orsted ORSTED is the most exposed to tariffs, yet it remains a stock he considers deeply undervalued.
Year to date, Orsted’s share price has dropped around 15% and is trading at DKK 286.20, below the fair value of DKK 460.
In July of last year, Orsted finalized the acquisition of Sunrise Wind, an offshore wind farm in the US. However, Fulop estimates that the tariffs will lead to a DKK 2 billion impairment for (EUR 267 million) Orsted on this project.
“What is relevant for wind farms is the tariffs on steel. Orsted will give an update in its Q1 results within the next two weeks. But the impact from tariffs should not be that significant,” he says.
Vestas Faces Chinese Competition
Vestas VWS, the Danish manufacturer of wind turbines, is also considered significantly undervalued by Morningstar with a 5-star rating.
Matthew Donen, director of equity research at Morningstar, believes that despite Vestas’ weak share price, the green energy transition is a long-term story that Vestas will play a key role in. But in the short term he anticipates the business, reliant on commodities, to be affected, influenced, damaged, hurt by Trump’s trade wars.
“If you are importing steel from other regions you are going to have a higher cost base and you are not always able to recoup those higher costs through higher prices. Also, when you receive orders for wind turbines, you only deliver it in a year or two, which means you are locked into a selling price. If costs go up, the margin you make will be reduced,” he says.
However, Donen sees the rise of Chinese competition, as the greatest challenge for the Danish wind turbine producer.
“You are now seeing some Chinese suppliers with even more powerful wind turbines than their Western competitors. I would say that you are not going to have a Chinese supplier supply to the US in this current environment. But there are examples of European developers opting to select some Chinese turbines because they are more powerful and sometimes cheaper.”
In February, Vestas’ operating profit reached EUR 759 million which surpassed the company’s own estimates of EUR 672 million. The company benefited from higher selling prices of its wind turbines which reduced the impact of inflation pressures coming from the commodities it needs to produce them.
Year to date Vestas shares are down 13% and is trading at around DKK 90, below a fair value of DKK 164.
EDPR Under Pressure
Portugal’s EDP Renovaveis EDPR is also significantly undervalued, according to Morningstar’s Fulop, as it has been severely hit by the shift in sentiment around renewables. Shares are around 25% lower so far this year.
Its poor share price performance has also been exacerbated by Trump’s tariffs because EDPR is the European renewable energy developer with the largest footprint in the US.
Its US exposure to solar energy depends on parts from China and Southeast Asia.
However, Morningstar’s Fulop believes in the medium term EDPR will get around the worst impacts of the tariffs because the company previously altered its supply chain to develop more of its parts ins the US.
“For 2026, EDPR says that their solar modules are tariff free because 70% are made in the US due to the Inflation Reduction Act under Biden. Whilst the remainder are primarily sourced with American manufacturer First Solar,” he says.
The stock is trading around EUR 7.54 but has a fair value estimate of EUR 13.
This article was originally published in March 2025.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
