Why solar energy stocks are on fire this week

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What happened

Solar energy stocks had a strong week this week as favorable winds in energy and financial markets worked in favor of the industry. Not only does it appear that oil and natural gas prices will remain high for the foreseeable future – which could prompt homeowners to consider solar power – interest rates are falling, which should lead to higher margins for businesses. solar installers.

The gains were widespread, but there were notable drivers to dominate the market. SunPower (NASDAQ: SPWR) was up 14.7% in the first four trading days this week, Sunrun (NASDAQ: RUN) increased by 14.3%, SolarEdge Technologies (NASDAQ: SEDG) jumped 16.7%, and Sunnova Energy (NYSE: NOVA) rose 13.4% to supplement residential solar inventories. On the manufacturing side of industry, Daqo New Energy (NYSE: DQ) was up 13.4% in the first four days of trading.

Image source: Getty Images.

So what

Over the past week, there has been an increasing flow of information about rising oil and natural gas prices in the United States, which appears to be going on for some time. You can see below that oil and natural gas prices have been rising for months, but that didn’t really impact solar energy stocks until recently.

Henry Hub Natural Gas Spot Price Table

Henry Hub natural gas spot price data by YCharts

I ran through some of the dynamics in the industry earlier this month, which you can read here, but the little story is that demand for energy products has returned to pre-pandemic levels, but production is on the rise. decrease due to reductions in capital spending over the past 18 years. month. This leads to significantly higher prices and unless we see energy companies investing in more drilling, the increase could last for some time.

What is the impact of oil and natural gas prices on solar energy stocks? Maybe not directly, but if natural gas heating prices go up this winter and electricity prices go up, it could make residential solar power more attractive to homeowners. So it’s no surprise that most of the market leaders this week are companies that focus on residential solar installations.

Interest rates are the other major factor driving solar energy stocks this week. Since solar projects are normally funded over 20 or 30 years, the rate at which a company can fund projects is very important. Lower rates mean that companies can sell projects or financing for more money (i.e. higher margins) and higher interest rates mean that the value of the projects decreases. The 10-year US Treasury rate fell from 1.61% at the close of the market last Friday to 1.51% at the close on Thursday, a sharp drop in a single week. Rates rose through the end of the week, trading at a yield of 1.57% as of this writing, but the overall rate hike we’ve seen in recent months appears to have come to a halt.

Now what

Although solar power is not normally in direct competition with oil and natural gas, there should be a positive wind for the industry if energy products become more expensive overall. Higher prices for natural gas make rooftop solar power more attractive, while higher oil prices make electric vehicles more attractive, and electric vehicle owners are likely to have solar power on rooftops as well. rooftops. Add lower interest rates and it’s a good week to be bullish on solar stocks.

These trends may reverse as quickly as they appear, but for now, market winds are favoring the solar energy industry.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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