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Solar Stocks Soar As China Considers $220 Billion Stimulus Package

  • Solar stocks jumped as news emerged that China is considering a $220 billion economic stimulus.
  • Both Chinese and Canadian solar companies posted impressive gains on Thursday.
  • China is the world's biggest solar market and has been aggressively developing its solar sector.

Shares of solar and alternative energy providers have received a much-needed shot in the arm after news emerged that China is considering a $220B stimulus package to shore up its sluggish economy.  Solar-related names posted big gains on Tuesday, led by Chinese solar product manufacturers Daqo New Energy (NYSE: DQ) +14.6% and JinkoSolar (NYSE: JKS) +13.2%, while solar tracking systems provider Array Technologies (NASDAQ: ARRY) +10.3% and Canadian solar module manufacturer Canadian Solar (NASDAQ: CSIQ) +9.3% also impressed.

Other top-gainers were SunPower (NASDAQ: SPWR) +7.3%, Shoals Technologies Group (NASDAQ: SHLS) +7.3%, Sunrun (NASDAQ: RUN) +7.2%, Sunnova Energy International (NYSE: NOVA) +7.1%, Maxeon Solar Technologies (NASDAQ: MAXN) +7.1%, First Solar (NASDAQ: FSLR) +6.8%, SolarEdge Technologies(NASDAQ: SEDG) +6.3%, Enphase Energy (NASDAQ: ENPH) +5.8%, ReneSolar (NYSE: SOL) +5.5%, and FTC Solar (NASDAQ: FTCI) +4.3%.

China is the world's biggest solar market and has been aggressively developing its solar sector. In fact, the International Energy Agency (IEA) has warned that the global solar product supply chain is in danger of becoming too reliant on China.

In a special report on the solar sector,  the IEA says China's share in all the manufacturing stages of solar panels currently exceeds 80%, and for key elements including polysilicon and wafers, it is set to rise to more than 95% in the coming years.

"The world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025. This level of concentration in any global supply chain would represent a considerable vulnerability," the agency wrote in the report.

The solar sector has also been buzzing after the U.S. and Canada announced a memorandum of understanding that would lift tariffs on Canadian solar products,

Former U.S. President Donald Trump imposed "Section 201" safeguard tariffs on imported solar panels and cells in January 2018 in a bid to protect domestic solar product manufacturers. However, he also failed to exempt Canada and Mexico from the duties, thus violating the terms of  U.S.-Mexico-Canada Agreement (USMCA) that eliminates most tariffs among the North American partners. In February, President Joe Biden extended the tariffs for another four years, but eased the terms to exclude a panel technology dominant among big U.S. projects in a major concession to installers.

In February, a dispute settlement panel determined that the tariffs were "unjustified and in violation" of the trade pact. The MOU effectively settles the dispute on trade in solar products under the USMCA agreement.

According to Canadian Trade Minister Mary Ng, the U.S. and Canada "share goals and commitments to fight climate change," and that the removal of tariffs would "bring stability and predictability to our renewable energy sector and strengthen North American competitiveness."

Canadian Prime Minister Justin Trudeau's government has pledged net-zero carbon emissions by 2050.

Renewable Growth

Unfortunately, solar stocks have largely given up Thursday's gains, reinforcing the thesis that this market has little appetite for growth stocks and continues to pivot heavily to value stocks.

Indeed, this is becoming a recurring theme for the clean energy sector.

Related: Why Biden Could Come Back From Saudi Arabia Empty-Handed

After enduring a torrid season in 2021, renewable energy stocks have continued to underperform in 2022, with the sector's popular benchmark iShares Global Clean Energy ETF (NASDAQ:ICLN) down 8.9% in the year-to-date compared to a 22.8% gain by its fossil fuel equivalent, the Energy Select Sector SPDR Fund (NYSE:ARCAXLE).

But don't let the anemic returns by clean energy stocks fool you: the green energy sector is in the pink of health and enjoying robust growth.

In fact, Russia's invasion of Ukraine has lit a fire under the sector, with the IEA predicting that renewable energy is on pace to set new records in 2022.

According to the IEA, new capacity for generating electricity from solar, wind, and other renewables is set to hit new records this year as governments seek to take advantage of renewables' energy security and climate benefits.

And, this does not appear to be mere hype: for the first time ever, solar and wind installations in the U.S. are generating more electricity than the country's nuclear power plants.

According to an analysis by the U.S. Energy Information Administration carried out by the SUN DAY Campaign research firm, renewables accounted for 29.3% of all U.S. electrical generation in April, an all-time high, with solar and wind producing 18% more electricity than nuclear during the month.

Energy Security

But this is not merely a U.S. phenomenon.

According to the IEA's latest Renewable Energy Market Update, last year, a record 295 gigawatts of new renewable power capacity was added to the global power grid, a remarkable achievement considering the crippling supply chain challenges, construction delays, and high raw material prices that the industry has been grappling with.

Renewable growth is expected to be even more impressive this year, with global capacity additions expected to clock in at 320 gigawatts--or nearly enough to match the European Union's total electricity generation from natural gas. Solar PV is expected to be in the lead again, with the sector on course to account for 60% of global renewable power growth in 2022, followed by wind and hydropower. Global additions of solar PV capacity are on course to break new records this year and next, with the annual market expected to reach 200 GW in 2023.

Indeed, the IEA says the additional renewables capacity commissioned for 2022 and 2023 has the potential to significantly reduce the European Union's dependence on Russian gas. About 16 percent of the EU's total power demand is currently met via electricity generation with natural gas, a significant share of which is sourced from Russia. The EU's natural gas-fueled electricity generation annually ranges from 340 TWh to 600 TWh, with Russian gas accounting for 100 TWh to 200 TWh of that.

"Energy market developments in recent months--especially in Europe--have proven once again the essential role of renewables in improving energy security, in addition to their well-established effectiveness at reducing emissions. Cutting red tape, accelerating permitting and providing the right incentives for faster deployment of renewables are some of the most important actions governments can take to address today's energy security and market challenges, while keeping alive the possibility of reaching our international climate goals," IEA Executive Director Fatih Birol has said.

To meet its goal for the accelerated adoption of clean energy, the bloc will start allowing some renewable energy projects to receive permits within a year. The European Commission will also propose rules requiring countries to designate "go-to areas" of land or sea suitable for renewable energy.

By Alex Kimani for Oilprice.com

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