Solar stocks took a massive hit on higher interest rates and slowing demand.
But many are showing signs of life again, as we near a potential rate cut from the Federal Reserve. That’s because lower rates will have a significant impact on volume and margins. When interest rates get too high, as they recently have, financing gets more expensive and margins suffer, as we’ve seen, unless they can raise prices on consumers.
In addition, according to RBC Capital, solar projects can be 3x more sensitive to interest rates than conventional energy projects, which “positions the solar industry to be a large beneficiary of interest rate cuts,” as quoted by Seeking Alpha. The analysts also said “the levelized cost of energy for solar improves by greater than 4% for every 50 basis-point cut in interest rates.”
Helping, according to Nextracker CEO Dan Shugar, “solar is unstoppable” and is set to double every two to three years against an “unprecedented period of demand growth.”
Taking that into consideration, investors may want to start jumping back into solar names, such as SunPower (SPWR) and Sunrun (RUN), and even ETFs such as the Invesco Solar ETF (TAN).
With an expense ratio of 0.68%, the TAN ETF invests in some of the top solar names, including First Solar, Enphase Energy (ENPH), SolarEdge (SEDG), Canadian Solar (CSIQ), and Sunnova Energy (NOVA) to name a few.
