Solar Stocks Under Pressure: The Dual Impact of High Interest Rates and Political Uncertainty

Impact of High Interest Rates on Solar Financing

High interest rates have negatively impacted solar sales and financing options, but expectations of future rate cuts could improve solar economics. SunPower has expanded its financing options to mitigate these challenges, while Enphase Energy notes a decline in sales due to current high rates.

"We also expect the Fed to lower interest rates later in the year, improving solar economics for the US consumers." --- (ENPH, earning call, 2024/Q2)

"Factors that could cause or contribute to such differences include, but are not limited to, regulatory changes and the availability of economic incentives promoting use of solar energy, changes in interest rates and consumer demand, competition in the residential solar industry, our ability to manage risks relating to product financing programs and fluctuations or declines in the performance or availability of our solar panels and other solar and storage products and solutions." --- (SPWR, press release, 2024/05/22)

"We also expect the Fed to lower interest rates later in the year, improving solar economics for the US consumers." --- (ENPH, earning call, 2024/Q2)

"Today, SunPower Financial expanded its suite of solar financing options to include loan2 and lease financing for Tesla battery installations as approximately 82% of SunPower customers choose to finance their solar-plus-storage system." --- (SPWR, press release, 2024/05/22)

"And basically, from last year, the solar sales are down because of high interest rates in the U." --- (ENPH, event transcript, 2024/05/15)

Political Uncertainty and Solar Policy Changes

Political and regulatory uncertainty significantly impacts the solar industry, affecting trade, environment, and economic conditions (TSLA). The production tax credit has improved solar economics in the U.S. (NEE), and collaboration with regulators has enabled beneficial investments (NEE). The Inflation Reduction Act presents new opportunities (NEE).

"However, we operate in a cyclical industry that is sensitive to political and regulatory uncertainty, including with respect to trade and the environment, all of which can be compounded by inflationary pressures, rising energy prices, interest rate fluctuations and the liquidity of enterprise customers." --- (TSLA, sec filing, 2024/Q1)

"And I think it's really driven by a critical factor, which is that the production tax credit for solar really improved the economics for solar across a wide swath of United States where it's underpenetrated relative to wind technologies." --- (NEE, event transcript, 2024/06/11)

"In our storm response, our storm response has improved dramatically as a direct result of our investments in technology and infrastructure. We've worked constructively with our regulators and our legislators over the past years and have developed these programs that enable these investments for the benefit of our customers." --- (NEE, Investor Day, 2024/06/11)

"But that changed with the passage of the Inflation Reduction Act, and now this is an opportunity we're extremely excited about." --- (NEE, Investor Day, 2024/06/11)

Cost of Capital and Solar Profitability

High capital expenditures by companies like NextEra Energy and Tesla highlight the significant investment required in the solar sector. Despite rising costs, technological advancements, such as solar optimization tools, aim to enhance profitability, potentially offsetting the impact of high capital costs on solar profitability.

"That provides tremendous visibility into our capital plan. Over the next 4 years, we project to invest $34,000,000,000 to $37,000,000,000 That's going to allow us to continue to grow regulatory capital employed at roughly a 9% compound annual growth rate through 2027.We're going to continue to invest to improve the overall customer value proposition by adopting new technologies, maintaining our existing generation fleet, expanding and enhancing our transmission and distribution infrastructure while maintaining our best in class reliability, and building new generation to support load growth to continue to drive fuel out of the bill." --- (NEE, Investor Day, 2024/06/11)

"Capital expenditures amounted to $2.77 billion during the three months ended March 31, 2024, compared to $2.07 billion during the same period ended March 31, 2023, representing an increase of $701 million." --- (TSLA, sec filing, 2024/Q1)

"FPL's capital expenditures were approximately $2.3 billion for the quarter and we expect FPL's full year 2024 capital investments to be between $7.8 billion and $8.8 billion." --- (NEE, earning call, 2024/Q1)

"Owing and subject to the foregoing as well as the pipeline of announced projects under development, all other continuing infrastructure growth and varying levels of inflation, we currently expect our capital expenditures to exceed $10.00 billion in 2024 and be between $8.00 to $10.00 billion in each of the following two fiscal years." --- (TSLA, sec filing, 2024/Q1)

"On the left, you'll see our solar optimization tool. It goes through 100,000 iterations of designs on a solar field before we actually put it out in the field, figures out the lowest cost, highest production, best profitability." --- (NEE, Investor Day, 2024/06/11)

Future Outlook for the Solar Industry

Enphase Energy and First Solar highlight the future of the solar industry through innovative solutions, regulatory considerations, and market expansion. Enphase focuses on advanced technology and new market entries, while First Solar emphasizes regulatory impacts and community solar programs to broaden accessibility and promote clean energy.

"With compatibility for solar panels up to 640W, industry-leading safety, and an impressive 25-year warranty, our commercial solution is built for the future." --- (ENPH, Twitter, 2024/07/08)

"The ALMM is approved by the Ministry of New and Renewable Energy, and any modifications to the ALMM and its application may affect future investments in solar module manufacturing in India." --- (FSLR, sec filing, 2024/Q1)

"🤠🏠 The future of solar requires new ways to think about how we design and deploy systems." --- (ENPH, Twitter, 2024/05/14)

"This method also makes solar energy available to more people from different backgrounds and encourages everyone to support clean energy practices, ultimately leading to a greener future. A report on CNET.com added: 'Instead of buying and installing solar panels on your home -- a decision that could see you footing steep upfront costs -- community solar programs allow residents to subscribe to pull their energy from large arrays of solar panels located nearby.'" --- (FSLR, press release, 2024/04/11)

"We plan to enter many more new countries by the end of the year. We aim to further increase our served available market by simplifying installations of small solar systems and social housing and ruling out balcony solar solutions to more European countries, starting with Germany. The other variant of IQ8P microinverter with the new three-phase cabling system is well-suited for small commercial solar installation, ranging from 20 to 200 kilowatts." --- (ENPH, earning call, 2024/Q2)

Government Incentives and Their Role in Solar Growth

Government incentives, such as the Inflation Reduction Act and state programs like NYSERDA's NY-Sun, have significantly spurred solar growth. Favorable legislative and regulatory environments further support capital deployment and expansion in the solar sector, driving substantial future growth.

"Community solar programs expanded in key states in 2023 and a new report by a leading company in the industry points to significant growth in the next few years." --- (NEE, press release, 2024/04/11)

"And then there are additional complications with government incentives like the Inflation Reduction Act, the IRA, Joe [ph] has found like a funny name." --- (TSLA, earning call, 2024/Q1)

"You've got a great legislative environment, you've got a constructive regulatory environment, and you've got the growth that you need in order to deploy capital in the state." --- (NEE, event transcript, 2024/06/11)

"And in the IRA, the introduction of the production tax credit for solar, which made solar more attractive than it was even before, as well as a standalone ITC for storage, so that really spurred demand for solar and storage." --- (NEE, earning call, 2024/Q1)

"The Projects are expected to be eligible for incentives under the New York State Energy Research and Development Authority (NYSERDA) NY-Sun Program." --- (NEE, press release, 2024/04/11)