Solar stocks soar on new funding frenzy

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Over the last couple of years or so, the clean energy sector has become a major laggard, with investors giving it a high profile. The iShares Global Clean Energy ETF (ICLN), a catch-all clean energy bet, is trading 30% below its January 2021 high after a major rally fueled by ESG optimism drove many stocks in the sector to record highs and at stratospheric valuations.

Fortunately for the sector, the passage of the landmark climate bill Inflation Reduction Act gave him a well-deserved boost. The IRA allocates $369 billion to renewable energy with the American Clean Energy Association thinking he 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.

Investors love it: According to Jon Hale, global head of sustainability at Morningstar, clean energy funds attracted net inflows of around $433.6 million in the two weeks since the July 27 disclosure. of the Congressional IRA deal, versus net outflows of $223 million in the two weeks before the deal.

The solar sector, in particular, became red hot after a White House statement said the United States was on track to triple domestic solar manufacturing capacity by 2024: Premier Solaire Inc.. (NASDAQ: FSLR) Stock Jumps 56% Since IRA Passed; Enphase Energy (NASDAQ: ENPH) climbed 34% during this period, SunPower Corp. (NASDAQ: SPWR) jumped 66%, Canadian Solar (NASDAQ: CSIQ) gained 29% while Sunrun Inc. (NASDAQ:RUN) jumped 48%.

In fact, solar is now the top-ranked sector: IBD’s “Solar-Energy” industry group ranks first out of 197 industry groups tracked. IBD industry groups are a combination of companies within the same company.

There is a method to the madness going on, however

Incentives for the production of solar panels

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.

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.

Curbing Inflation Act: Clean Energy Game Changer

The White House has set aside a $700 billion package that will fight inflation by cutting energy and health care costs for families and helping reduce the deficit.

The Cut Inflation Act will expand a number of tax credits already available for renewable energy and also create new incentives for investment in clean energy technology or power generation. For the first time ever, potential clean energy investors have reassurance in the form of a decade of federal government grants.

Over the past decade, generous tax credits for wind and solar projects have sparked explosive growth in US installations. Unfortunately, these loans often have short-term horizons, scaring off risk-averse investors and leaving project developers scrambling to meet impending deadlines.

Related: The global gas crisis is spreading to the United States

The IRA is offering long-term tax credit commitments for wind and solar, bundled into a $430 billion bill and including new credits for energy storage, biogas and hydrogen.

Solar and wind project developers will also benefit from increased support if they build their projects in poorer areas or use equipment made in the United States. The bill also includes incentives for companies to manufacture more of the green technologies needed to achieve this.

It’s going to be a golden period of 10 years, at least. That’s a long horizon for people to plan and really kick this clean energy transition into high gear,Keith Martin, a Norton Rose Fulbright attorney who works on financing renewable energy projects, told Reuters.

Prior to this bill, we were looking at one-year and two-year extensions of the tax credit while trying to fund projects that took three to five years to build. For the first time, this gives the industry and investors certainty as to what the funding environment will look like 2034″, Tom Buttgenbach, CEO of the American solar developer 8 minutes of solar energytold Reuters.

The bill also offers home improvement credits that will allow households to deduct from their taxes 30% of the cost of improvements like heat pumps or insulation as well as an additional deduction of 30% of the cost. of solar panels and battery storage.

People wishing to replace their petrol and diesel cars with electric vehicles will also benefit from tax credits. Couples with a combined annual income of less than $300,000 and individuals with less than $150,000 will be eligible for a credit of $7,500 on new electric vehicles and $4,000 on used vehicles.

Rewiring Americaa nonprofit energy-efficiency awareness organization, projects that, combined with new tax credits and other efforts to improve energy efficiency, could save Americans about $1,800 per year and per household.

Shawn Kravetz, president of a solar-focused hedge fund Esplanade Capitaltold Reuters his fund would change course after the new bill and focus more on the US market rather than Europe.

Our tactics have changed because we see more opportunities in the United States. The scale and scope of the opportunity just grew,“said Kravetz.

The leading US utility trade group says the bill will encourage many members to eliminate carbon emissions from their systems by 2050, as it creates subsidies for technologies beyond wind and solar .

By Alex Kimani for Oilprice.com

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