TheChek News Flow

Comments from Jeremy Hunt and his deputy come as data shows the UK economy flatlined in the third quarter

Business taxes are set to fall in this month’s Autumn Statement as UK ministers signalled that they want to incentivise companies to pull Britain out of its growth stupor.

As new data showed the economy flatlining, chancellor Jeremy Hunt and his deputy John Glen made clear their desire to cut business taxes, including by extending the flagship “full expensing” capital allowance regime.

In September, Hunt insisted that the tight fiscal situation meant that tax cuts were “virtually impossible” at his Autumn Statement. But, on Friday, he said: “Cutting business taxes is the thing that’s most important at this stage.”

The UK economy stagnated in the three months to September, according to official figures from the Office for National Statistics on Friday, putting more pressure on Hunt to stimulate the economy.

Glen, Treasury chief secretary, told the Financial Times that the flatlining economy was in line with market expectations but “of course it’s not good news”. He said the Autumn Statement would focus on boosting growth.

Government insiders said that Hunt was likely to extend beyond 2026 the “full expensing” regime, which lets businesses deduct the full cost of investments in IT equipment, plant or machinery from their profits.

The tax break is known inside the Treasury as “the Big Daddy” of business tax cuts. Extending the tax break, or making it permanent, is seen as the biggest ask from business ahead of the Autumn Statement.

While a one-year extension is seen by officials as the most likely outcome, Hunt has said he would like to make the tax break permanent when it is fiscally responsible to do so. That option remains on the table, said people briefed on the Autumn Statement discussions.

Business taxation is a critical element of the equation that needs to be examined very carefully

John Glen, Treasury chief secretary

The Office for Budget Responsibility, the fiscal watchdog, has said the annual price tag for the scheme is about £10bn, which means that an extension will make it harder for Hunt to remain within his fiscal rules that require public debt to be on a downward path in five years’ time.

Glen argued that the true annual cost of the scheme could be lower in the longer term, saying that this was a “contestable space”.

The most recent OBR forecast on March 15 gave the chancellor £6.5bn of headroom against that fiscal rule, although since then public borrowing has undershot the watchdog’s expectations.

The Resolution Foundation has estimated that the headroom will be about £13bn because the impact of higher inflation on the public finances is proving less malign than expected.

Speaking from his constituency in Salisbury, Wiltshire, Glen made it clear that lower taxation was a crucial component in generating growth.

“Growth is the key thing that 2024 needs to be about,” he said.

“Business taxation is a critical element of the equation that needs to be examined very carefully,” Glen added. “Clearly, the level of taxation business and individuals face has an impact on the level of confidence in the economy and where they invest.”

Glen, a well-known figure in the financial services world after serving as City minister from 2018-2022, said he was deeply sympathetic to Tory MPs who want to see cuts to personal and business taxation.

“I’m not deaf to the fact politicians face elections,” he said. But he also cautioned that the government was not about to take big fiscal risks to secure an electoral advantage ahead of a poll expected in the autumn next year.

“I’m not comfortable with the high levels of tax we have, but we also have to have integrity in our public finances,” Glen said.

He added: “Serious people who run significant tranches of our economy in the City of London want serious people in the Treasury making long-term decisions rather than seeking to garner political support in the immediate term.”

Glen is deploying that approach to a review of productivity in the public sector commissioned by prime minister Rishi Sunak with the aim of curbing the growth of the state and creating space for tax cuts in the longer term.

He said the review would look to cut administrative spending in areas like the NHS, police, schools and justice system and identify areas where artificial intelligence could accelerate processes and cut costs.

“AI is massive,” said Glen, a technocratic minister who has long been a key lieutenant of Sunak and who shares the prime minister’s love of data.

His public sector review would also look at earlier interventions in areas like support for children or in justice to reduce demand in the system. But he admitted that his work would not save money this side of an election.

Glen said his was a “deep, reasoned, analytical and rigorous” piece of work intended to generate savings in the next spending period, beginning in 2025. Would a potential incoming Labour government find it helpful? “I hope it’s useful in all circumstances,” he smiled.

He insisted that it was vital to challenge the idea that public services were inevitably facing a period of austerity after the election because of very tight spending controls pencilled in by the Treasury.

“We will not just buy into this narrative that unless you increase money forever in every government department you are leading to a deterioration in public services,” he said.

“All those that commentate and look at public spending need to stop seeing it through the lens of how much more money we have got to put in,” he added.

Glen claimed that economic growth will “accelerate in 2024”, an optimistic view not shared by the Bank of England, which has predicted that the economy will flatline throughout next year, and that inflation will be falling. But he admitted that might not be enough to win over a sceptical public.

“There have been legacy political issues that people have found very disturbing,” he said, a reference to the recent turbulent past of the Boris Johnson and Liz Truss premierships.

As for Sunak’s recent problems with his populist home secretary Suella Braverman, Glen made clear his distaste for some of his cabinet colleague’s recent comments.

Asked whether he shared Braverman’s views that people living on the streets were making a lifestyle choice, he said his “overall sentiment is one of compassion and concern”.

As for Braverman’s description of a pro-Palestinian demonstration on Saturday as being a “hate march”, Glen said: “It is incumbent on all politicians to think carefully about how their remarks will be interpreted and what effect it will have on different groups and how they behave.”

Emerging markets specialist brings 40-year career to an end

Mark Mobius, one of the founders of emerging markets investing, is to step down from his eponymous firm after a 40-year career in asset management.

Mobius, 87, will leave Mobius Capital Partners in the coming months, the investment firm he co-founded in 2018, according to a statement to the London Stock Exchange on Friday.

He is one of the industry’s most prominent emerging market fund managers, having started one of the first funds dedicated to emerging markets more than 30 years ago.

The veteran investor also bought bargains in Asia and Russia after financial crises shook their markets in the late 1990s.

Mobius spent the bulk of his career at Franklin Templeton, where he launched one of the world’s first funds dedicated to growth economies in 1987, and grew the Templeton Emerging Markets Group’s investments in the sector from $100mn to $40bn during his tenure.

After he retired from Franklin Templeton in 2018, he founded Mobius Capital Partners with Carlos Hardenberg and Greg Konieczny, who also worked with him at Franklin Templeton. The company runs a $42mn fund, and a £164mn investment trust both focusing on emerging markets.

The fund, which invests primarily in Taiwan, India, South Korea and Brazil, has returned 26.9 per cent since it was founded, compared with the 11.5 per cent return from MSCI’s EM Midcap index.

Hardenberg, who has worked with Mobius for 23 years, said: “Our journey over the past five years has been marked by progress . . . we would like to extend our heartfelt gratitude to Mark for his exceptional contributions to emerging market investing over his long career.”

Mobius said: “As a shareholder of the Mobius Investment Trust, I will be following the company’s progress closely and will continue to be available to the team and the board.”

Maria Luisa Cicognani, chair of the Mobius Investment Trust, said: “We would like to express our immense gratitude to [Mark] for his advice and expertise over the years. We look forward to continuing to work with Mark, drawing on his support and vast knowledge of emerging markets.”

Hardenberg told the Financial Times that new partners in the firm will be announced in due course. “[Mark’s departure] is amicable and he will continue to be very active,” he said.

“We need to ensure that we have a robust structure in place which will support us in the years to come.”

City’s Democratic leader says he has ‘nothing to hide’ as authorities reportedly investigate campaign donations

New York City mayor Eric Adams said he had “nothing to hide” after his electronic devices were seized in the street by the FBI as part of a corruption investigation into his 2021 election campaign.

The Democratic politician’s campaign confirmed on Friday that Adams had been approached earlier this week by FBI agents. The news came days after a raid on the Brooklyn home of his 25-year-old chief campaign fundraiser, as authorities reportedly probe potentially illegal donations from the Turkish state.

In a statement, Adams, a former police officer who was elected to City Hall in 2021, said he expected “all members of my staff to follow the law and fully co-operate with any sort of investigation”. He added: “I will continue to do exactly that. I have nothing to hide”.

The escalation in the corruption probe follows an early-morning search last week of the Crown Heights home of Brianna Suggs, a former intern for Adams who rose to become head of his campaign funding organisation.

Adams rushed back from Washington, where he had been attending a White House meeting about migrants, after the raid was reported. “As a human being, I was concerned about a young 25-year-old staffer that went through a traumatic experience,” he told reporters.

US media reported that agents had seized iPhones and laptop computers, and were investigating potential illegal kickbacks to Turkish officials by the campaign, among other unlawful activities.

Adams has travelled to Turkey several times in the past few years, including while Brooklyn borough president. He has repeatedly denied wrongdoing since the search of Suggs’s home.

A lawyer for Adams’s campaign, Boyd Johnson, said that after learning of the federal investigation, “it was discovered that an individual had recently acted improperly”. 

“In the spirit of transparency and co-operation, this behaviour was immediately and proactively reported to investigators,” he added. “The mayor has been and remains committed to co-operating in this matter.” 

Johnson’s statement confirmed reporting by The New York Times that the FBI had approached Adams on Monday night “after an event”. He said the mayor “immediately complied” with agents’ requests and provided them with his devices.

The Times had reported that the agents climbed into Adams’s SUV and that the devices were subsequently returned. Those details were not confirmed by the mayor’s office.

“The mayor has not been accused of any wrongdoing and continues to co-operate with the investigation,” Johnson concluded. 

Adams’s 2021 campaign has been referenced in other criminal probes, with six people, including a retired police inspector, being charged by the Manhattan district attorney in July for allegedly “subverting campaign finance laws”.

The office of the US attorney for the Southern District of New York, which is reportedly involved in the federal probe, declined to comment.

Kurt Rappaport explains how a court verdict could upend the business for others; ‘I put my money where my mouth is’

If you’re Kurt Rappaport—a real-estate agent to the stars, with billionaires on speed dial and $100 million home sales under your belt—there’s really only one way to throw yourself a housewarming party, and that’s by inviting Snoop Dogg to DJ.

The 2022 event, at Rappaport’s old Hollywood-style compound in Los Angeles, was the culmination of a five-year renovation. It epitomized the rarefied world of luxury real estate in which Rappaport operates, where A-list clients flip $50 million homes and industrious agents can make fortunes of their own helping others buy and sell real estate.

At 52, Rappaport is at the pinnacle of a gilded world of superbrokers, featured in reality TV shows like “Selling Sunset” and “Million Dollar Listing.” Now a landmark court verdict threatens to upend the business after a federal jury in Missouri found the National Association of Realtors and large brokerages conspired to keep commission fees artificially high. The industry norm is 6%, split evenly between the buyer and seller’s agents. As a result of the ruling, the federal trial judge could mandate industrywide changes to the way brokers are paid.

At stake nationally is roughly $100 billion that Americans pay each year in real estate commissions. By his own estimate, Rappaport sold $1.6 billion worth of real estate last year, an amount that almost certainly earned him tens of millions of dollars in fees.

With a newfound ability to negotiate, home shoppers with access to real-estate data may forgo having two agents, or insist on paying less. Rappaport predicts agents could have to step up their game—to work harder, work smarter, develop thicker skin, leave it all on the table, he says. “There are a lot of people who think it’s easy and they can just take their friends to look at properties and that’s really not what this business is about,” he says.

He’s confident that his own niche at the high-end is secure. “No one is buying a $50 million or a $100 million house without having someone represent them,” he says. “We don’t get paid for our time. We don’t get paid for the effort,” he said. “You get paid for whether you win or lose, whether you get the result. You can always find someone who will charge less, but will they get it done?”

Six-foot-2-inches tall with a thicket of dark hair, Rappaport grew up in Los Angeles as the only child of parents who split when he was young. After moving in with his father, entertainment lawyer Floyd Rappaport, the teenager hobnobbed with the rich and famous at Spago and industry parties.

By his 20s, Rappaport was muscling his way to the top of L.A.’s glittering real-estate scene. After dropping out of the University of Southern California, he got an entry-level job at a production company, but quickly pivoted to real estate, which he loved for its deal making, architecture and design. In 1994, when Rappaport was 22, he listed Hollywood madam Heidi Fleiss’s Beverly Hills-area home, priced just under $1.8 million. (Michael Douglas bought it.) Around then, he also sold a $10 million home to Sylvester Stallone, and a slew of VIP clients followed. In 1999, Rappaport and business partner Stephen Shapiro launched their own brokerage shop, Westside Estate Agency. “I do the management,” Shapiro told real-estate trade magazine the Real Deal in 2020. “He sells.”

A turning point came in the early 2000s. Rappaport was out to dinner when an anonymous caller rang his cellphone. It was Oracle co-founder Larry Ellison, who wanted to see a beachfront property in Malibu the next day. The story, now industry lore, goes that the listing agent wasn’t free but Rappaport opened the door anyway and Ellison bought the house for $11.8 million in 2002. Rappaport has since brokered more than 30 sales for Ellison and trophy-home collectors like him. In addition to Ellison, Rappaport’s repeat clients include talk-show host and serial home-flipper Ellen DeGeneres, and over the years he has represented Ryan Seacrest, David Geffen, Brad Pitt and Madonna. Earlier this year, Rappaport brokered Beyoncé and Jay-Z’s roughly $200 million purchase of an oceanfront Tadao Ando-designed mansion in Malibu, a deal that set a California sales record. He is currently marketing the Bel-Air estate of the late billionaire financier Gary Winnick for a potentially record-setting $250 million.

The unrelenting grind reaps rewards, particularly at an elite level.

In 2020, when Rappaport surfaced as a bidder to buy the New York Mets, Forbes estimated he was worth $250 million. The same year, he paid $3.7 million for a 1909 Honus Wagner baseball card. “Not only is it beautiful, but it’s rare,” he told TMZ Sports, describing the baseball card the same way one might view fine art or architecture.

Rappaport has also parlayed his winnings into his own portfolio of luxury homes. In 2018, he sold a 15,000-square-foot Malibu mansion to Canadian billionaire Daryl Katz for $85 million and his Hollywood Hills home to Tinder co-founder Sean Rad for $26.5 million. A year before selling the Malibu house, Rappaport got married there to model Sarah Hutch in a star-studded affair featuring a performance by Christina Aguilera. The marriage was short-lived; after their 2018 split, Rappaport married Zorana Kuzmanovic. They live in the compound that was completed in 2022.

Rappaport said some agents spend their money on vacations or cars, but not him. He has been buying real estate himself ever since he began selling it. “It’s not just that I’m trying to make a deal,” he said. “I put my money where my mouth is. That’s how you get wealthy. By owning, not by being a broker.”

Chair Archie Norman says making clothing more appealing and closing unprofitable stores is paying off

One of the main architects of Marks and Spencer’s turnaround has credited efforts to break the “vicious circle” of sticking with ageing customers for helping revive the UK high street stalwart’s fortunes.

Chair Archie Norman told the Financial Times that the department store and grocery chain had previously focused too much on its older clientele and not enough on shoppers of all ages who want to look stylish.

“Because the customer base is ageing, we thought we should aim for ageing customers. The M&S core customer was seen as someone who no longer wanted to look stylish,” he said of the time when he was appointed in 2017. Now, the retailer understood that “you’d probably quite like to look like you did when you were 35 or 40”.

Gone from most stores are acres of drab clothes with confusing layouts. Instead, M&S has brought in upmarket fashionable brands such as Jaeger, which it bought out of administration in 2021, and begun selling others including Hobbs and Sweaty Betty on its website. Celebrities including Sienna Miller have been enlisted to front its fashion campaigns and it has embraced advertising on Instagram and TikTok.

For investors, the group is also back in fashion. The 139-year-old company, which has been promising shareholders and customers a revival for two decades, returned to the FTSE 100 after a four-year absence this year and announced this week that it would pay a dividend for the first time since before the pandemic.

M&S shares have more than doubled in the past 12 months, including the 9 per cent boost they received on Wednesday when the group reported a surge in first-half pre-tax profit, which jumped 56.2 per cent to £326mn.

Shareholders and analysts said that the retailer had turned a corner under Norman’s leadership.

Ian Lance, a fund manager at M&S shareholder Temple Bar Investment Trust, said the latest results “demonstrate that the strategy to reshape M&S is starting to deliver”.

“Phase one of this turnaround was about fixing the obvious strategic deficiencies within the business,” he said. “It feels like we are now moving on to phase two which is where the competitive advantage of the reshaped business starts to deliver real growth.”

But several cautioned that it still has a lot of market share to gain in food and clothing as well as remaining legacy systems to fix.

“Still in the M&S supply chain you have too many suppliers and a lack of smoothness from product leaving the factory through to reaching the store, so lots to do on that front,” said Clive Black at Shore Capital, adding that some stores still needed to be closed and others modernised.

Norman, a restructuring specialist and former MP, said his arrival followed “25 years of drift” at M&S, where the company had become notoriously slow moving.

M&S is now less sentimental about closing stores, having shut 86 outlets since 2017. The group has 244 full department stores selling clothes, food and homeware, with another 319 M&S-owned food stores and 461 franchise food stores.

Norman said there were more closures to come, with M&S saying this week that just over 90 stores are expected to go.

The 69-year-old acknowledged that the group had work to do on simplifying its supply chain, saying that it was “30 per cent of the way through” the work he wants to do.

A relatively new leadership team is also still becoming settled, he said. Former chief executive Steve Rowe stepped down last year and was succeeded by Stuart Machin, who oversaw the group’s food business. “Of our leadership team, 70 per cent of the top 15 [people], but also 70 per cent of the top 200 are now new to the business,” Norman said.

M&S has benefited from the collapse of several key high-street competitors in recent years — department store Debenhams and retail group Arcadia, which owned the Topshop, Burton, Evans and Wallis brands.

“I don’t expect a lot more capacity withdrawal, but you’re not seeing capacity increase either,” Norman said.

Store closures and a pullback from its international ambitions have freed up investment for its digital operation.

Online clothing sales have improved. “Our share of our sales online has gone from 17 per cent to around 30 per cent. We think that probably needs to go to 45,” he added. “We’ve not got open road but there’s a lot of space ahead.”

“There is lots of room for them to gain market share in clothing, and in food,” said Black at Shore Capital.

One key battleground is food. M&S’s latest profits were boosted by the performance of its upmarket grocery and food-to-go stores, which compete with the likes of Waitrose, and it has ambitions to increase its market share further.

Norman remains bullish on the prospects for Ocado Retail, the online supermarket it jointly owns. Although the partnership with Ocado is yet to be profitable — suffering a first-half operating loss of £23.4mn — M&S believes it will move into the black, albeit it in three years.

“Ocado, whatever you think of it, is going to grow,” he said.

The country’s attractiveness as a destination for private capital is at an all-time low, an investor association warns

Bill payers rightly throw their hands up when vital infrastructure fails. So it proved this week when 13,000 people south of London did not have running water. 

A Thames Water treatment works was hit by storms. The incident unleashed a gush of concern about infrastructure upgrades to improve climate resilience and support economic growth. And, crucially, who will stump up the cash. 

It is not just water. Money also needs to be pumped into energy, waste management, broadband networks and transport, according to the National Infrastructure Commission. To meet net zero emissions and improve productivity, investment in infrastructure will need to rise from an average of £55bn a year in the past decade to £70bn-£80bn per annum in the 2030s. Two-thirds will have to come from private investors, who recover costs via bills. Government investment will be largely focused on transport.

Once built, new infrastructure should lead to lower costs. Take energy. Gas-fired power stations have higher operating costs than wind farms. By 2055, household spending on infrastructure services should drop from today’s £7,300 to between £5,100 to £6,100 in 2022 prices, says the NIC. That is despite a sustained rise in water bills.

But Britain is out of favour with infrastructure investors. Its attractiveness as a destination for private capital is at an all-time low, warns the Global Infrastructure Investor Association, whose members include Brookfield and Macquarie.

Generous subsidies in the US and the EU do not help comparisons. Yet some wounds are self-inflicted, such as a recent bungled offshore wind auction.

Tackling long-running gripes such as planning delays would help woo back frustrated investors. In future there will be a lot more at risk than several thousand people temporarily without water.

Organized labor has surged back into the U.S. conversation, with (mostly) successful strikes by the United Auto Workers and Hollywood writers and actors. Europe, the motherland of labor unrest, has gone quiet.

That isn’t how 2023 started. In February, United Kingdom strike activity hit a post–Margaret Thatcher peak. Germany shut down for a one-day “megastrike” in March. Transportation unions wreaked havoc across the continent as the summer travel season approached.

Autumn has brought eerie calm instead. “The storm has passed for now,” says Nina Skero, CEO of U.K.-based consultant Cebr.

One reason is that the winter-spring labor actions worked. German postal workers scored an average 11.5% pay increase in March. U.K. teachers settled for 6.5% in July. The union successes have rippled across economies. U.K. wage hikes are running at 7% to 8%, reports Hannah Slaughter, senior economist at the Resolution Foundation in London.

Governments have also taken direct action to cushion citizens from inflation. Germany spent 2% of gross domestic product subsidizing energy costs in 2022, and France and Italy, 1% each, the European Commission estimated. The U.K. has raised its minimum wage by 45% since 2016 to 10.42 pounds sterling ($12.81) per hour.

Europe’s macroeconomic weather meanwhile has also changed sharply. Inflation, a major driver for all the strikes, has fallen to 3% in the euro area from 10% a year ago. The U.K. rate has dropped from 11% to less than 7%.

Attention has shifted to the prospect of recession, which should grip most of Europe by early next year, says Eoin Drea, senior researcher at the Wilfried Martens Centre for European Studies. “Both employers and the unions are worried about what the winter will bring,” he says. “That has dampened expectations.”

Especially damp is Germany, home to Europe’s premier private-sector union, 2.2-million-strong IG Metall. GDP there has shrunk in three of the past six quarters. The heavy industry where IG Metall might flex its muscle has been rocked by the cutoff of cheap Russian natural gas and threatened by emerging Chinese supremacy in electric vehicles.

Christiane Benner, who made history by becoming the mega-union’s first female boss last month, has started out playing defense. Rather than stick it to the bosses, she’s lobbying government to halt the “creeping dismantling of industry and jobs.”

Restive French unions focused their energy and political capital this year on street protests against President Emmanuel Macron’s plan to raise the pension age. Macron forced through the reform unilaterally. The demonstrations subsided with little carry-over into industrial action. Strike-prone Italy has also gone quiet. “France and Italy have been quite stable from a labor market point of view,” Drea says.

Creeping dismantling might describe the long-term picture for European organized labor. This year’s strikes were concentrated in the public sector. Private-sector unions struggle against the same headwinds as U.S. counterparts: outsourcing, gig work, and declining membership, says Kurt Vandaele, senior researcher at the European Trade Union Institute. “With the increase of temporary contracts and far less political support, it’s not a very optimistic picture,” he says.

IG Metall’s Benner is nonetheless warning one new German employer that her union isn’t dead yet. That would be Elon Musk and Tesla (ticker: TSLA), which is revving up production at its gigafactory outside Berlin. “You need to be careful,” she told the headstrong billionaire in a Bloomberg interview. “The rules of the game are different here.”

Musk didn’t answer, but he did give his German workers a 4% raise.

Stocks related to wind, solar and other forms of renewable energy have fallen by a third this year. Only a handful may be ready to rebound.

Clean-energy stocks are suffering through their worst slump in years, causing the industry’s value to tumble by tens of billions of dollars and endangering America’s environmental goals.

Major auto manufacturers like General Motors and Ford Motor (F) have delayed plans to roll out electric vehicles. Offshore wind developers are canceling or delaying projects that were expected to provide millions of Americans with carbon-free electricity. Homeowners, even in climate-conscious states like California, are buying fewer solar panels for their roofs. And green-power producers known for offering steady, reliable dividends have lost their veneer of safety. Rising interest rates have posed the gravest challenge to the industry, but supply-chain problems, inadequate electric transmission infrastructure, and competition from China are hurting, too.

The fallout has caused 76 of the 77 stocks in the Invesco WilderHill Clean Energy exchange-traded fund (PBW)—a green-power benchmark—to fall for the past three months (the one stock to rise is a tiny fuse maker). The ETF itself is down 32% since the start of the year, compared with a 14% gain for the S&P 500

Most of those stocks look set to keep dropping. Solar and wind companies are awash in mispriced inventory and face an extended stretch of high interest rates; they’re probably several quarters away from a financial rebound. Newer tech like clean hydrogen is years away from profitability. While some clean-energy stocks do seem headed for a rebound, even those call for some caution.

Beyond the financial fallout, the setbacks in green energy have broad implications for the environment, particularly after the hottest summer on record. A consortium of scientists known as the Climate Action Tracker says the country is off track to meet its 2030 goal to roughly cut emissions in half from 2005 levels, and won’t get there “without additional, drastic emission reductions measures.” That will require all of the force that the clean-energy industry can muster.

There are political implications, too. America’s energy transition, a key pillar of President Joe Biden’s agenda, is under threat. Biden wants America to produce all of its electricity without emitting carbon by 2035, a goal that depends on lightning-fast installation of new energy infrastructure. Last year’s Inflation Reduction Act earmarked at least $369 billion for clean energy. To make the government’s investment pay off, companies will need to spend trillions more. Biden can ill-afford delays.

Serious as they are, the industry’s setbacks are not about to halt the energy transition. They look more like a detour than a derailment. Unlike in past eras, the shift to renewable energy now has powerful momentum. Just about every electricity producer and seller in America is on its way to going green, albeit at different speeds, and they often face penalties if they backtrack. Tech advancements have made renewables cost-competitive with fossil fuel plants in many states, even without government help. And industrial-size batteries are solving a longstanding problem for renewables: They are keeping the lights on even when the sun isn’t shining and the wind isn’t blowing.

There’s another big force supporting the transition: private money. Even as the stocks crater, private investments are cascading into the industry. Outside of electric vehicles, in fact, the majority of investment in clean energy is happening in private markets. From August 2022 to August 2023, private-equity firms had invested $108 billion in new renewable energy and energy storage projects in the U.S.—more than all of the publicly traded North American utilities and independent power producers combined, according to S&P Global Commodity Insights.

The transition is “the first major industrial and technology investment cycle that occurs primarily in opaque private markets,” says Peter Gardett, the executive director of climate and clean-tech research at S&P Global Commodity Insights.

Private-equity investors commit to long holding periods, and are less likely to react to day-to-day price gyrations. Copenhagen Infrastructure Partners, one of the world’s largest private clean-energy fund managers, is on track to raise 12 billion euros ($12.9 billion) for its newest fund by next year, despite the fact that a third of the fund will be invested in the most-troubled area in renewables—offshore wind. “That money is committed with us for many, many years, not just quarter to quarter,” says Tim Evans, a partner at the fund manager.

For investors who don’t have the institutional backing or personal wealth to buy into private funds, there are slim pickings in publicly traded stocks—but they do exist. The ones closest to rebounding look to be large producers of clean power. Thanks to long-term contracts that have remained intact, utility-scale producers like AES (AES) and NextEra (NEE) could eventually lead the sector out of its morass.

To understand what could go right in clean-energy stocks, it’s important to see what has gone wrong. The list is not short. It starts with high interest rates. Solar and wind projects, and new electric-vehicle plants, demand heavy upfront investments that should pay off over decades. With the cost of corporate debt doubling in the past two years, from 3.2% to 6.4% for Baa-rated bonds, it’s a bad time to be taking out new loans to finance capital projects. “It was an industry whose economics rested on low rates,” says Bobby Tudor, CEO of Houston-based Artemis Energy Partners, which invests in traditional and clean-energy companies. “When you have your cost of debt effectively doubling, it sort of wipes out your equity return.”

For companies that sell rooftop solar systems, high rates have complicated the sales pitch. Homeowners are less inclined to finance big home projects when interest costs rise. The Inflation Reduction Act gave homeowners a tax credit worth 30% of the value of their solar system, but even that credit can’t overcome customer doubts when rates are high. In states like Texas and Arizona, where retail electricity rates are low, solar has become a much harder sell, say installers and equipment-makers.

And in California—the No. 1 state for solar—new rules that reduce the rates that utilities pay to solar customers that generate excess power have curbed demand for panels. Residential solar developers like Sunrun (RUN), Sunnova Energy International (NOVA), and SunPower (SPWR) have been hit hard by these dynamics. Sunrun reduced its growth outlook this month due to the “difficult conditions in the sector.”

Residential solar companies face another headache in Europe, where the war in Ukraine has made fossil fuels more expensive and caused a surge in rooftop solar adoption. That uptick in demand is slowing now, just as China has flooded the European market with cheap solar panels that destabilized the market. The industry’s middlemen, known as distributors, are awash in inventory just as demand has slackened.

The result is a paralyzed supply chain that has sunk the stocks of solar-equipment makers like Enphase Energy (ENPH) and SolarEdge Technologies (SEDG), which had been some of the best clean-energy performers for years. Enphase has projected that fourth-quarter sales would fall 40% below analysts’ expectations, and warned that the malaise will stretch into 2024. “In the short term, it is going to be a stressful time,” Enphase CEO Badri Kothandaraman tells Barron’s.

The utility-scale solar market—the panels that are spread across fields that transmit electricity to power plants—is in somewhat better shape. Utilities are rate-sensitive, but they can pass rising costs on to consumers. And power producers are installing solar modules at a rapid rate today, with the U.S. on track to roughly double its utility-scale solar installations this year from last year’s level, according to energy consultancy Wood Mackenzie.

Solar manufacturer First Solar (FSLR) is the most prominent company in the utility-scale industry, and it has been the biggest beneficiary of Biden’s clean-energy bill. The company has secured orders for the next several years. But it’s still vulnerable to Chinese competition, depending on tariff decisions starting next year. The stock fell 25% in the past three months and may waver until tariff policy becomes more clear.

Onshore wind power, the largest source of renewable electricity in the U.S., is in even worse straits. Turbines dot the landscape throughout the Midwest and in states like Texas. But uneven tax subsidies, slow transmissions approvals, inflation, and other problems have kept installations below their 2020 peak for the past two years. It isn’t clear when the industry will get back on track, even with the more-reliable subsidies in the clean-energy law.

Offshore wind is in perhaps the worst position of all. That industry is just getting started in the U.S., with turbines now going up near Martha’s Vineyard, Mass., set to provide the country’s first commercial-scale power. The Biden administration has much higher hopes. Biden has touted offshore wind as a key technology to decarbonize the electrical grids in several high-population coastal states like New York and Massachusetts, announcing a goal of installing 30 gigawatts of offshore wind power by 2030—enough to power 10 million homes. But several projects have already been delayed or canceled due to increasing costs, including a recent decision by offshore wind market leader Orsted (DNNGY) to walk away from two projects in New Jersey that were expected to provide enough power for about a million homes.

S&P Global Commodity Insights just slashed its 2030 offshore wind projection to 12 gigawatts from 22 gigawatts last year. A senior Biden administration official said in a phone call that the industry is dealing with a “macro environment that presents headwinds,” but said that Biden still expects to hit the 30 gigawatt goal by 2030.

Among the few stocks that seem able to withstand these forces are large utilities that have been betting on renewables for years and have the capital to buttress results during difficult moments. NextEra, whose business is split into a regulated Florida utility and a more freewheeling renewable-energy arm, is a case in point. The utility, which still generates most of its electricity with fossil fuels, has seen steady returns. Investors have been less sure about the clean-energy arm, which is the largest renewable developer in the U.S.

An affiliated company that buys some of NextEra’s renewable projects warned investors in September that high interest rates were hurting its growth prospects, sending NextEra stock down. But NextEra management said on its latest earnings call that it has plenty of capital to fund its growth plans, including by selling tax credits through a new program authorized by the Inflation Reduction Act. Illustrating its resiliency, NextEra reported record bookings in its latest quarter and kept its earnings guidance through 2026.

NextEra’s business selling power through long-term contracts insulates it from most near-term pressures. Analysts have lifted their projections for NextEra’s 2024 earnings, even as they’ve been cutting them for other green names. NextEra nonetheless trades in line with the market today on a price/earnings basis, after historically trading at a 50% premium. The current stock price “offers a significantly attractive entry point,” writes Morgan Stanley analyst Dave Arcaro. He thinks that shares could rise to $79 from a recent $59.

Then there is AES, a Virginia utility that also builds large renewable-power projects across the country. Its stock has fallen 42% this year, but its growth trajectory remains intact. Analysts have reduced their 2024 earnings estimates by only 2% this year, and the company just reaffirmed its 7% to 9% earnings growth guidance through 2025. AES has made inroads in states with aggressive climate policies like New York, where it is the largest owner-operator of renewable assets and just won 1.2 gigawatts worth of new contracts last month. Arcaro thinks the stock could rise to $26 from a recent $16.

It will not take a magic trick for clean-energy stocks to rise again. Some combination of falling interest rates and better supply chains could go a long way. If those factors come together in 2024, clean energy once again could be riding high.