After receiving a huge bullet in the arm thanks to the history Inflation Reduction Act Passed in August, solar stocks received a boost after California regulators released a scaled-down version of a plan to reform its rooftop solar subsidy. A copy of the proposal from the state utility regulator is expected to make rooftop solar more expensive in the state, but is less stringent than an earlier proposal. America’s Leading Rooftop Solar Panel Manufacturer Sunrun Inc. (NASDAQ: RUN) rose 27% while SunPower Inc.. (NASDAQ: SPWR) and Sunnova Energy International (NYSE:NOVA) climbed 20%.
“The updated Tariff billing structure is designed to optimize grid usage by Tariff customers and encourage the adoption of combined solar and storage systems. These changes will help meet California’s climate goals and increase reliability, while promoting affordability at all income levels.“, said the Chief Administrative Law Judge in the filing.
Sunrun, Sunnova, Enphase Energy (NASDAQ: ENPH) and First Solar (NASDAQ: FSLR) all traded higher Tuesday after Deutsche Bank hedging initiated stocks with buy ratings, citing their high exposure to US markets following the passage of the Cut Inflation Act.
On Sunrun, Deutsche Bank noted its high exposure to the U.S. residential solar market, which the bank says is poised for strong growth trends as the Cut Inflation Act will further stimulate demand through tax credits on all domestic content. Meanwhile, First Solar’s strong backlog, with the company fully sold through 2025, will be able to maintain momentum as demand for vertically integrated U.S.-made modules is strong.
Incentives for the production of solar panels
According to American Clean Energy Association, The IRA could more than triple the production of clean energy, reduce emissions by 40% by 2030 and create 550,000 clean energy jobs. One of the main goals of the IRA – the largest increase in federal government spending on alternative energy in US history – is to strengthen energy independence, reduce dependence on Chinese imports and revitalize the industrial sector.
Key to the passage of the IRA bill was the Solar Power Manufacturing Act for America. The new law creates new tax credits intended to rapidly expand domestic solar production and bring major solar supply chains online. According to Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, the bill aims to accelerate the transition to clean energy.
“The law will immediately spur private investment in generation capacity throughout the solar supply chain, including batteries, helping to create thousands of manufacturing jobs and support our energy independence,” Hopper said in written remarks after the law passed.
The act tooincludes significant incentives that, over time, will lead to a renaissance in American solar manufacturing. As a direct result of the IRA, we expect to see significant new capacity investments in solar home modules, trackers, inverters and racks over the next 2-3 years, followed by new capacity investments ingots, wafers and solar cells within 3 to 5 years. years“, according to the association of solar energy.
Major beneficiaries of the IRA bill include First Solar, which makes solar modules for homes and businesses around the world.
“For the first time, solar energy manufacturers would benefit from a long-term sustainable industrial policy designed to revitalize and develop large-scale domestic manufacturing and innovation,“First Solar CEO Mark Widmar said in a written statement.
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Guggenheim upped FSLR stock to buy from Neutral with a price target of $135 while JP Morgan upgraded it to Overweight from Neutral with a price target of $126 from $83. FSLR stock was trading at $127.18 during Tuesday’s intraday session.
“Of all the names in our coverage, we think First Solar appears to be best positioned to benefit from the provisions of the Cut Inflation Act passed by the Senate. Investors haven’t fully understood how transformative the IRA could be for FSLR’s business“, wrote Joseph Osha of the Guggenheim in a note to clients.
Meanwhile, Needham chose First Solar and Sunrun Inc. as the main short-term beneficiaries and added that Enphase Energy Inc. and SolarEdge Inc. (NASDAQ:SEDG) will also benefit from higher government spending and greater adoption of solar energy.
Meanwhile, Piper Sandler analysts have updated Array Technologies Inc.. (NASDAQ: ARRY) moves from neutral to overweight with a price target of $28, good for a 67% upside, saying they expect the outlook for the renewable energy company to improve.
Analysts say they believe the company’s $1.9 billion backlog, along with historic orders-to-bills ratios, lays the foundation for strong revenue and EBITDA growth for CY 2023. The analyst also sees the solar tracking system maker as a beneficiary of the National Content Requirements and manufacturing credits in the IRA.
Array Technologies designs and manufactures solar ground surveillance systems. The company went public in October 2020 and managed to surge 45% on its first day of trading despite its increased IPO price. The IPO valued the company at around $2.79 billion, but the torrid rally nearly doubled that figure to $5 billion. Unfortunately, missed earnings expectations have seen ARRY shares fall out of favor with the investment universe and the company now boasts a market capitalization of just $2.6 billion.
By Alex Kimani for Oilprice.com
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