Why solar energy stocks fell on Friday

What happened

Shares of solar power stocks fell like a rock on Friday after Sen. Joe Manchin of West Virginia said he would not support additional climate change spending.

Shares of First Solar (FSLR -8.12%) fell 14.2% at the start of the session, sunrun (CLASSES -6.36%) fell 14.1%, Sun Power (SPWR -3.38%) fell 11.8%, and Enphase Energy (ENPH -1.02%) fell 11.1%.

So what

News broke overnight that negotiations between Senate Democrats had broken down and that Manchin would not support additional taxes or climate change-related spending in a new bill. Ironically, the text of the bill and full details had not been released, but the industry seemed to think it was likely that solar tax credits could be extended, and even a made in America provision had been supported by First Solar.

Manchin’s biggest worry was that increased spending on climate change initiatives would lead to even more inflation at a time when inflation is spiraling out of control. Earlier this week, June’s consumer price index was reported to have risen 9.1% from a year ago, and the Federal Reserve is rapidly raising rates in an attempt to lower the rate. ‘inflation.

Solar stocks often move when subsidies of any kind are proposed or passed, but the reality is that subsidies haven’t had a big impact on solar stocks over the long term. Driving their growth has been lower solar equipment costs and improved efficiency. This will not change without subsidies.

Now what

The market reaction was quick this morning, but in the long term, I don’t think the change in potential policies from Washington DC will change the momentum of the industry.

Perhaps better news came from the bond markets where 10-year US government bond yields fell 4 basis points to 2.92%. Solar installations are often financed with debt, and even a small increase in interest rates can actually increase the cost of electricity from a solar plant. So a rate cut would be good news, especially after the rapid rise in interest rates over the past three months.

In the long term, I don’t think today’s decision is a big deal for the solar industry. Grants have come and gone over the past decade and the industry continues to grow.

In the same vein, solar installers have had to deal with increasing inflationary pressures, which makes it difficult to install projects profitably. In a residential solar project, the cost of the solar panel is only about 10% of the overall cost, so the increased cost of metal, labor and other inputs may have more impact. impact than any increase in panel costs.

A quick reaction is understandable for the market, but in the long run, it’s noise for solar stocks. The future is still bright, especially for industry leaders.