Meridian Energy Ltd (ASX: MEZ) shares are tanking today. At the time of writing, the Meridian share price is trading at $5.30 – down 3.99%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is down 0.77%.

During earlier trade, Meridian shares fell by as much as 7.6% before recovering to their current levels. The slump comes after a large sell-off of the New Zealand energy provider's shares by private equity firm BlackRock Inc.

Let's take a closer look at why the company's shares are in the red.

Background

Meridian Energy is New Zealand's largest electricity generator, operating hydro stations and wind farms in New Zealand and Australia. It is majority-owned by the government of New Zealand.

All of its energy is generated through renewable energy sources, including 90% via hydropower. The company is dual-listed on both the ASX and the NZX.

What's dragging the Meridian share price?

The Meridian share price is on the slide today after the company provided an update to the ASX. In the update, Meridian declared BlackRock is selling 53% of its stake in the company or roughly 96 million shares.

Any large influx of shares onto the open market is likely going to drag on the price of the stock. That's because supply of the stock will likely outweigh demand for it at its higher price. In economics, this is known as the law of supply and demand.

According to the Financial Times, BlackRock was forced into today's actions because of an influx of investments in its clean energy exchange-traded fund (ETF) iShares Global Clean Energy ETF (NASDAQ: ICLN).

The underlying index that calibrates the ETF is comprised of only 30 companies. Investments in the ETF, and its European equivalent, grew by 1,321% to US$10.8 billion from the start of 2020 to now. The massive cash inflows into the ETF saw the fund's stake in companies like Meridian and Contact Energy Ltd (ASX: CEN) grow to potentially dominant levels. Before today's sell-off, BlackRock owned 7.1% of shares in Meridian.

The S&P Global Clean Energy Index (SP: SPGTCLEN) was reweighted to include more companies to counteract the concentration problems that were foreseen. Meridian went from 4.5% weighting in the old index to just over 0.7% in the newly calibrated one.

Meridian share price snapshot

Over the past 12 months, the Meridian share price has increased by 24.71%. Its share price, however, is around 43% lower than its all-time high of $9.33. The record was achieved in early January when President-elect Joe Biden's Democratic party won both Senate seats in the state of Georgia and thus control of the upper chamber. Investors saw the news as a boon for green energy companies.

The post Why the Meridian Energy (ASX:MEZ) share price is falling appeared first on The Motley Fool Australia.