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Solar stocks are on the rally because even if President-elect Biden faces a divided Congress, investors are still betting the industry will flourish.
Under the leadership of the Trump administration, growth in the industry over the past four years has shown that favorable economic benefits are driving solar power. While a united political environment will certainly accelerate the uptake of renewables, analysts say that, in the final analysis, the so-called “blue frenzy” (Democrats win President + Senate) is far from the deciding factor in the industry.
Biden put environmental protection goals first throughout the campaign and launched a $ 2 trillion climate plan in the summer that will prioritize renewable energy and strive to advance the United States to achieve energy generation. carbon free by 2035.
Ahead of the election, investors rallied in solar energy stocks on rising expectations of the blue frenzy. Then on Wednesday, when the likelihood of Democrats handing over the Senate seemed to decline, solar stocks fell because they believed that if the Senate was still controlled by Republicans, it would be difficult to pass extensive legislation.
But solar energy stocks subsequently rallied and regained all lost ground as Wall Street saw the short-term noise and focused on the industry’s long-term potential.
“Investors are very excited about the industry, believing that a mixed Congress will continue to support renewable energy and may consider job creation opportunities in the Democratic and Republican states, extending tax credits for solar / wind and other energy technologies. renewable. “Cowen’s analyst said Friday.
On Wednesday, First Solar (FSLR) and SunPower (SPWR) fell 8.55% and 2.8%, respectively, and Invesco Solar ETF (TAN) fell 2%. At the same time, the S&P Index posted its best day since June, while the Nasdaq Composite Index posted its biggest one-day gain since April.
Then on Thursday, solar power picked up as optimism once again permeated the field. SunPower was up 17% and SolarEdge (SEDG) was up 13%. First Solar and Sunrun (RUN) were up 8.9% and 7.4%, respectively. The Invesco Solar Fund was up 11.4%, its best daily performance since March.
“As the government continues to divide, we continue to see strong renewable energy deployment driven by the favorable economics of wind and solar resources, despite the slower (but in many cases still fast) growth rate,” Morgan Stanley wrote in a note to clients Wednesday.
That said, considering solar stock earnings this year, as of Friday’s close, Sunrun and SunPower were up 318% and 298%, respectively, while SolarEdge and Sunnova were up 149% and 197%, respectively, Joe Osha JMP Securities said there may be some fluctuations in the future.
“I think the medium term that you will see here is a lot of volatility because the market tries to discount the political results,” he said. “Once we have certainty about what will happen in the future, this volatility will decrease.”
Osha attributes the volatility to changes in the stock’s valuation, as investors assess how different political outcomes will affect the industry’s long-term earnings potential. Considering the earnings of these stocks this year, by historical standards, their valuations are already high. In view of the high expectations of future earnings, some investors have chosen to turn a profit.
NBC News predicted Saturday that Biden will win the presidential election. The House of Representatives is expected to remain the domain of the Democratic Party, and the situation in the Senate is still too close to be judged. The two Senate elections in Georgia are likely to enter the second round of elections scheduled for January.
With a split in Congress, Biden is unlikely to pass his $ 2 trillion climate plan. However, given that renewable energy has received bipartisan support in the past, you can imagine extending the solar investment tax credit, which will expire in late 2021 for residential solar.
SunPower CEO Thomas Werner said that even if the tax credit is not extended, the industry will do well. But he added that to “allow Americans to win in the field of renewables,” it is essential to extend the ITC. Credit Suisse noted that as president, Biden may also take administrative action, including encouraging the Environmental Protection Agency and other agencies to promote the development of renewable energy.
Even without federal support, Jeffrey Berman, director of emissions analysis and clean energy at S&P Global Platts, noted that the statewide renewable energy portfolio standards have been the primary driving force behind solar and will continue to promote the application. of solar energy.
As the cost of solar power continues to fall, residential solar businesses have shown strong growth, especially as the industry recovers from the slowdown caused by the coronavirus.
In its third-quarter financial report, First Solar said its sales were up 70% year-on-year, and on Thursday Sunrun said its deployed megawatts were up 40% year-on-year.
“We are now at this point in recent years, not only can it be a more emotional investment, it is a very rational investment,” Sunrun CFO Tom von Reichbauer told CNBC of more consumers using clean energy. “You are getting more affordable and reliable electricity, and the price is fixed, I think this will help accelerate the growth rate of the entire industry.”
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