Wall Street’s Hottest Clean-Energy Bet Hits a Ceiling
Solar Stocks Shine
Nevertheless, solar stocks have been defying the bearish sentiment pervading the clean energy sector. Back in July, U.S. President Donald Trump signed into law ‘One Big Beautiful Bill Act’, rolling back many clean energy credits enacted by former President Joe Biden under the Inflation Reduction Act (IRA) of 2022. As widely expected, OBBBA is far from beautiful for various industries within the solar and wind energy sectors. However, the solar sector has continued to outperform, thanks in large part to robust U.S. and global solar demand as well as specific provisions within the OBBBA that favor solar manufacturing in the United States. The solar sector’s favorite benchmark, Invesco Solar ETF (NYSEARCA:TAN), has comfortably outpaced its oil and gas peers, returning 40.5% in the year-to-date compared to 4.2% return by the oil and gas benchmark, the Energy Select Sector SPDR Fund (NYSEARCA:XLE), and 14.8% gain by the S&P 500.
OBBBA favors solar manufacturing through provisions that incentivize domestic production and streamline the tax credit process, while also setting deadlines for construction and placement in service of solar projects. Specifically, it maintains and clarifies the tax credits for solar projects under Sections 48E and 45Y, while also phasing them out for wind and solar projects placed in service after December 31, 2027, unless construction began within 12 months of the Act's enactment.
First Solar (NASDAQ:FSLR) is one of the companies heavily favored by OBBBA, with the stock up 33.6% YTD. UBS recently reiterated its Buy rating and hiked its price target on FSLR to $275 from $255, saying the company will receive a significant boost to the bottomline from OBBBA credits. According to UBS, the present value of 45X tax credits for the company is worth $75 per share, while the company is expected to grow net cash to $25 per share by the second quarter of 2026. UBS says its PT is conservative, pointing out that it did not factor in extra earnings when First Solar’s finishing factory comes online. First Solar's 3.5 GW per year manufacturing facility in Louisiana is expected to be commissioned in the second half of 2025. This facility is part of First Solar's broader strategy to scale its American manufacturing footprint to over 10 gigawatts (GW) by 2025, according to Made in Alabama. The Louisiana factory, along with a new facility in Alabama, is are key component of this expansion.
Israel-based SolarEdge (NASDAQ: SEDG) leads the sector with YTD returns of 172.4%. Regarding regulatory changes under OBBBA, SolarEdge CEO Shuki Nir says the company’s multi-year strategy of onshoring manufacturing to the U.S. will help it preserve 45X advanced manufacturing credits over the next 7 years.
Meanwhile, some residential solar companies are also defying bearish projections. California-based residential solar company Sunrun (NASDAQ:RUN) has surged 107.8% YTD thanks to the company’s robust cost efficiencies as well as a record 70% storage attachment rate in its latest quarter. Sunrun installed a record 392 MWh of storage capacity during the second quarter, good for a 48% Y/Y increase, while solar capacity installations clocked in at 227 MW, up 18% Y/Y. Meanwhile, subscriber additions grew 15%, bringing the company’s total subscribers to 941,701 as of June 30.
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By Alex Kimani for Oilprice.com
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