After getting a massive shot in the arm courtesy of the historic Inflation Reduction Act passed in August, solar stocks have received yet another boost after California regulators released a scaled-back version of a plan to reform its rooftop solar subsidy. A copy of the proposal from the state's public utilities regulator is expected to make rooftop solar power more expensive in the state, but is less harsh than an earlier proposal. Leading U.S. rooftops solar manufacturer Sunrun Inc. (NASDAQ: RUN) has ripped 27% higher while SunPower Inc. (NASDAQ: SPWR) and Sunnova Energy International (NYSE: NOVA) climbed 20%.
"The updated billing structure of the tariff is designed to optimize grid use by the tariff’s customers and incentivize adoption of combined solar and storage systems. These changes will help meet California’s climate goals and increase reliability, while promoting affordability across all income levels," the chief administrative law judge said in the filing.
Sunrun, Sunnova, Enphase Energy (NASDAQ: ENPH) and First Solar (NASDAQ: FSLR) all traded higher on Tuesday after Deutsche Bank initiated coverage of the stocks with Buy ratings, citing their strong exposure to the U.S. markets after the passing of the Inflation Reduction Act.
On Sunrun, Deutsche Bank noted its strong exposure to the U.S. residential solar market, which the bank says is poised for strong growth trends, as the Inflation Reduction Act will further boost demand via tax credits to any domestic content. Meanwhile, First Solar's solid booking backlog, with the company fully sold out throughout 2025, will be able to maintain its momentum as demand for vertically integrated U.S. manufactured modules is strong.
Incentives For Solar Panel Production
According to the American Clean Power Association, IRA could more than triple clean energy production, cut emissions by 40% by 2030, and create 550,000 clean energy jobs. A major goal of IRA--the largest federal government spending increase on alternative energy in U.S. history--is to strengthen energy independence, reduce dependence on Chinese imports, and reinvigorate the industrial sector.
Key to the passage of the IRA bill was the Solar Energy Manufacturing for America Act. The new act creates fresh tax credits designed to rapidly expand domestic solar production and also bring key solar supply chains online. According to Abigail Ross Hopper, president and chief executive of the Solar Energy Industries Association, the bill intends to accelerate the transition to clean energy.
“The act will immediately spur private investments in production capacity across 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 act was passed.
The act also "includes important incentives that will, over time, lead to a renaissance in American solar manufacturing. As a direct result of the IRA, we expect to see significant new investments in domestic solar module, tracker, inverter and racking capacity within the next 2-3 years, followed by new investments in solar ingot, wafer and cell capacity within 3-5 years," according to the solar energy association.
Key beneficiaries of the IRA bill include First Solar, which manufactures solar modules for residences and businesses worldwide.
"For the first time, solar manufacturers would benefit from a durable, long-term industrial policy designed to revitalize and expand domestic manufacturing and innovation at scale," First Solar CEO Mark Widmar has declared in a written statement.
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Guggenheim has raised FSLR stock to Buy from Neutral with a $135 price target while J.P. Morgan has upgraded it to Overweight from Neutral with a $126 price target, up from $83. FSLR stock was trading at $127.18 in Tuesday’s intraday session.
"Of all the names in our coverage, we believe First Solar appears positioned to benefit the most from the provisions of the Inflation Reduction Act that passed the Senate. Investors have not fully digested how transformational the IRA could be for FSLR's business," Guggenheim's Joseph Osha has written in a note to clients.
Meanwhile, Needham has picked First Solar and Sunrun Inc. as the biggest beneficiaries in the near term and added that Enphase Energy Inc. and SolarEdge Inc. (NASDAQ: SEDG) will also benefit from higher government spending and more solar adoption.
Meanwhile, analysts at Piper Sandler have upgraded Array Technologies Inc. (NASDAQ: ARRY) shares to Overweight from Neutral with a $28 price target, good for 67% upside, saying they foresee an improved forward outlook for the renewable energy firm.
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The analysts say they believe the company's $1.9B order book, along with historical book-to-bill ratios, lay the foundation for a strong revenue and EBITDA growth going into CY 2023. The analyst also sees the solar tracking systems manufacturer as a beneficiary of domestic content requirements and manufacturing credits in the IRA.
Array Technologies designs and manufactures solar ground monitoring systems. The company went public in October 2020 and managed to surge 45% on its first day of trading despite its upsized IPO pricing. The IPO valued the company at about $2.79 billion, but the scorching rally nearly doubled that to $5B. Unfortunately, missed profit expectations have seen ARRY shares fall out of favor with the investing universe and the company now sports a market cap of just $2.6B.
By Alex Kimani for Oilprice.com
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