Why solar energy stocks may be down, but not out: Strategist
Solar energy stocks have taken a hit in 2023 due to higher interest rates which caused less demand for solar projects from retail consumers. However, the solar sector may still have a bright future ahead of itself in 2024 as rates are expected to come down and green initiatives are adopted.
Raymond James Managing Director Pavel Molchanov joins Yahoo Finance to discuss the success solar energy space's outlook.
"I know it might seem surprising, but actually the amount of solar installations in 2023 is a record globally, including a record in the United States," Molchanov states. "So it's not a volume problem. It's in some cases more of a margin problem and, of course, for the stocks as distinct from the fundamentals, it's also a question of valuation, right? So stocks can be down even if the fundamental business trends are actually up."
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Video Transcript
JULIE HYMAN: It's been a rough year for the solar market. The Invesco Solar ETF, ticker TAN, it's gotten clobbered. And companies are struggling with high interest rates and sales cooling down. There is, though, some optimism for solar stocks in 2024, according to our next guest. Here to talk more about the solar outlook, Pavel Molchanov is Raymond James Managing Director.
Pavel, it's always good to get your perspective on this. Indeed, it has been a rough year for these guys in part because of higher rates, right, because a lot of these products-- a lot of these projects rather, particularly on the residential side, are financed. We just had another company announcing in the form of Enphase today that it's going to cut workforce and close contract factories. Where do we go from here for the solar industry?
PAVEL MOLCHANOV: Well, I know it might seem surprising. But actually, the amount of solar installations in 2023 is a record globally, including a record in the United States. So it's not a volume problem. It's, in some cases, more of a margin problem. And of course, for the stocks, as distinct from the fundamentals, it's also a question of valuation, right? So stocks can be down even if the fundamental business trends are actually up.
But look, this year, 300 gigawatts of solar will be installed around the world, which is an all-time high, 30 gigawatts in the US also an all-time high. So it's actually not as bad as you might think.
JULIE HYMAN: At the same time, there have been some questions about accounting on the part of some of these companies, right? Because you talk about the cost involved, right, maybe that's part of the issue, even if the volume is happening, but there's some questions about how some of these companies are accounting for some of the tax incentives, for example, that their customers are getting and that they then are taking advantage of. Is this a problem that the industry needs to address a little bit better than it has been?
PAVEL MOLCHANOV: Tax credits in the solar industry have a long history in the United States specifically, going back to the Bush administration. So they're not new. What is new is something called Section 45X, which is this brand-new new subsidy-- for solar has been a big beneficiary of this for example-- as it relates to the manufacturing of products. So in other words, every solar panel you make in the US, you get cash from the federal government through a tax credit. So that is a new policy.
But I think, you know, maybe the broader picture on what you asked is these are, in most cases, relatively small companies, fast-moving, dynamic, young companies, in many cases. Yes, there are some accounting restatements. This is always annoying when it happens. But in the grand scheme of things, you know, it's hardly the end of the world.
