Why residential solar stocks have jumped today

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What happened

Solar energy stocks collapsed today, and many soared to double digits. Residential solar was one of the main beneficiaries, continuing a strong race for the sector.

Actions of SunPower (SPWR -9.11% ) led the way, climbing to 27.9%, while Sunnova‘s (NEW -5.74% ) stocks climbed 12.7% and Sunrun ( CLASSES -5.58% ) gained 16.3% to its highest level. All three stocks were up 23.7%, 9.7% and 15%, respectively, at 2:25 p.m. EDT.

Image source: Getty Images.

So what

The market reaction today was due to the fact that the Democrats’ two (probable) victories in the Georgian Senate second round would give the party full control of Congress. This would allow President-elect Joe Biden to implement more of his policies and also get Senate appointments.

From a political standpoint, investors have hoped for the past six months that a Democratic administration would push for more favorable renewable energy policies. Some of that has already come to fruition, with a two-year extension of the investment tax credit for solar projects included as part of the latest stimulus package.

Perhaps more important is Biden’s ability to secure Senate appointments. The Federal Energy Regulatory Commission, which sets the rules for utilities across the country, is now under Republican control, but that will change in mid-2021 when President Neil Chatterjee’s term expires. Biden can now nominate a more liberal candidate, who could have been blocked by the Senate had he been under Republican control.

Regulatory appointments may not sound exciting, but they are extremely important to the renewable energy industry. Regulators decide how wind and solar are treated in electricity markets, and they will play a critical role in creating rules for energy storage and efficiency technologies, which could experience a boom over the next decade. The market views democratic control by the White House and Congress as very optimistic for the future of solar power – and residential energy storage, in particular.

Now what

The election results were clearly good news for solar companies, and I see positive policy changes coming in the industry. But a big green energy package is unlikely to be passed by Congress given what Tory Democrats have said about these policies, so there may only be small wins for business. residential solar panels. This means that the gains we’ve seen over the past six months could be overstated if these companies don’t grow quickly next year.

I’m bullish on the solar industry over the next decade, but I’m also cautious given how quickly solar stocks have risen. We have already seen big gains before we were disappointed, so buyers should be aware of this risk today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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