Solar and the Stock Market

As of this writing, the global economy is on an insane roller coaster and US stocks have lost $2.1 Trillion in the last week. Do we have any idea what this means for solar?

The recent problems began with news of a cooling Chinese economy, and this is important to solar watchers for a number of reasons. Although no one can say for sure how long the stock sell-off will last, some solar market watchers are looking at the implications for the solar industry in both the near and long term. Many investors are watching companies like Trina solar, who are being dragged down with the rest of the market, as good opportunities to buy and hold. Professional investors at Seeking Alpha believe that Trina, Junko and other Chinese solar manufacturers that have sound financial fundamentals and are showing growth may be looking at a strong rebound when the market finishes its correction.
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One factor that has plagued solar stocks this summer is their continued association with other energy stocks. In October of 2014, we here at Solar Tribune reported on the solar industry’s struggle to educate investors and decouple solar prices from the falling price of crude oil. I wrote that “In the US, Solar competes primarily with coal-fired electricity, which supplies 39% of the nation’s energy supply. Meanwhile, petroleum supplies only 1% of US electrical generation. Petroleum prices could drop precipitously, and make virtually no dent in the price of electricity. On the other hand, solar does compete directly with natural gas, which is the nation’s #2 source of electricity, providing 27% of US electrical generation. Back in March, CNBC reported that price links between solar and crude prices had “begun to break down completely.” However, current conditions indicate that the uncoupling from petroleum is not yet complete…” Unfortunately, that decoupling process is still not entirely complete, and volatility in oil prices continues to hurt solar.

Among the bloodbath taking place on Wall Street right now, solar stocks are generally looking better than a lot of other industries. Both Trina and Jinko showed gains, as well as First Solar and Canadian solar. Commentators speculate that this stronger performance of solar among the ruins may be due in part to President Obama’s announcement of the roll out of new incentive programs for solar.

The initiatives include:

  • $1 billion in additional loan guarantee for energy projects.
  • Making Property-Assessed Clean Energy (PACE) financing available for single-family housing easier to invest in.
  • Launching new programs to provide home owners with new tools to measure and improve the energy efficiency of their homes.
  • Creating a DOD Privatized Housing Solar Challenge.
  • A $24 million commitment for 11 projects in seven states to double the amount of energy existing solar panels can produce.
  • Approving a transmission line to support a 485-megawatt photovoltaic facility.
  • Creating an Interagency Task Force to Promote a Clean Energy Future for All Americans.
  • The White House continued that its initiatives are expected to reduce emissions by 26-28 percent below 2005 levels in 2025 while also doubling energy productivity by 2030.

The other piece of the puzzle is interest rates. This will definitely have an effect on how the solar industry performs going into 2016. The Motley Fool reports: “The threat of higher interest rates, which would lead to lower returns for solar projects, has also threatened companies’ potential for expansion. Debt investors have demanded higher rates of return from SunEdison (NYSE:SUNE) and SolarCity (NASDAQ:SCTY), two of the most active solar companies in the debt markets, and that has to be a little concerning for the industry.”

Despite their grim outlook for solar, even the Motley Fool sees the stronger solar companies as good long-term investments. Ultimately, growth may slow, but look to solar companies to possibly out-perform other sectors in the months and years to come.

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