Why solar stocks are up today

What happened

Shares of solar stocks have jumped across the board today following positive rumors from Washington, DC. its way through Congress.

Solar power led the attack higher by climbing a whopping 18.9% today, but Sunrun, Canadian Solar, Enphase energy, and Daqo New Energy all jumped double digits, with SolarEdge Technologies follows close behind.

Data source: Yahoo! Finances.

And then

Multiple media outlets out of Washington, DC, say congressional leaders may begin pairing an extension of solar tax credits with a COVID-19 incentive bill. The investment allowance for solar energy has decreased from 30% in 2019 to 26% in 2020; it is expected to drop to 21% in 2021, then 10% for commercial and utility projects and 0% for residential projects in 2022. It is not yet clear what level an extension would be at, but any extension would be good news for solar energy companies.

The direct impact of higher subsidies will not hit solar companies evenly. SunPower and Sunrun have much to gain from residential and commercial grants, where they provide tax and debt financing as well as installation services. Manufacturers such as Canadian Solar, SolarEdge, Enphase, and Daqo could see greater demand as developers build more solar projects as they are more cost-effective.

Roof with solar panels on a partly sunny day

Image Source: Getty Images.

What now

So no law has yet been passed investors are currently ahead of any policy changes. And it’s worth considering that solar stocks had a strong run-up in the summer and fall ahead of Biden’s election.

I also don’t want to ignore the potentially positive impact that increased subsidies can have on solar companies. Demand has started to pick up in recent years after rates hit in 2017. And if rates are cut, subsidies are increased, and positive policies are pursued by the Biden administration, it could create a multi-year tailwind for the US industry.

Given the US focus of today’s news, SunPower and Sunrun clearly have the most to gain, but if a compromise is reached by Congress in the coming weeks, including an extension of solar grants, that would be great for long-term industry.