Scores of solar stocks rallied hard on Friday after a probe by the U.S. Commerce Department cleared several companies of tariff evasion though some foreign manufacturers were found guilty of malpractice. Four of the firms investigated were found not to have evaded tariffs, including one tied to JinkoSolar Holding Co. (NYSE: JKS), which soared as much as 13% while Array Technologies Inc. (NASDAQ: ARRY), a U.S. maker of solar trackers, gained as much as 12%.
Solar names traded broadly higher, with Enphase Energy (NASDAQ: ENPH) soaring +6% to an all-time high; SolarEdge Technologies (NASDAQ: SEDG) +5.2%, SunPower Corp. (NASDAQ: SPWR) +4.5%, Maxeon Solar Technologies (NASDAQ: MAXN) +5.9% and Shoals Technologies (NASDAQ: SHLS)+6.3%.
Interestingly, Canadian Solar Inc. (NASDAQ: CSIQ) rose 7.2% despite being among companies found to have circumvented tariffs because it got off lightly. Canadian Solar, which ships products through Thailand, was found guilty of evading tariffs by routing some of their operations through Southeast Asia and will now be subject to a 16% tariff rate.
Experts say the probe is likely to push solar companies to spend more on producing their components in the U.S. The report may also portend additional solar tariffs, though they will be delayed because the Biden administration implemented a two-year suspension of duties in June to give importers time to make adjustments, and also invoked the Defense Production Act to help U.S. suppliers compete with Asian rivals.
In contrast, industry groups have warned that the government's actions will actually slow down the pace of solar deployment in the U.S.
Last month, solar stocks received yet another boost after California regulators released a scaled-back version of a plan to reform its rooftop solar subsidy. A copy of the proposal from the state's public utilities regulator is expected to make rooftop solar power more expensive in the state, but is less harsh than an earlier proposal.
"The updated billing structure of the tariff is designed to optimize grid use by the tariff’s customers and incentivize adoption of combined solar and storage systems. These changes will help meet California’s climate goals and increase reliability, while promoting affordability across all income levels," the chief administrative law judge said in the filing.
Sunrun, Sunnova, and First Solar (NASDAQ: FSLR) have had good runs after Deutsche Bank initiated coverage of the stocks with Buy ratings, citing their strong exposure to the U.S. markets after the passing of the Inflation Reduction Act.
On Sunrun, Deutsche Bank noted its strong exposure to the U.S. residential solar market, which the bank says is poised for strong growth trends, as the Inflation Reduction Act will further boost demand via tax credits to any domestic content. Meanwhile, First Solar's solid booking backlog, with the company fully sold out throughout 2025, will be able to maintain its momentum as demand for vertically integrated U.S.-manufactured modules is strong.
Incentives For Solar Panel Production
But the biggest boost the solar sector has received so far this year came in August after the U.S. Senate passed the historic Inflation Reduction Act.
According to the American Clean Power Association, IRA could more than triple clean energy production, cut emissions by 40% by 2030, and create 550,000 clean energy jobs. A major goal of IRA--the largest federal government spending increase on alternative energy in U.S. history--is to strengthen energy independence, reduce dependence on Chinese imports, and reinvigorate the industrial sector.
Key to the passage of the IRA bill was the Solar Energy Manufacturing for America Act. The new act creates fresh tax credits designed to rapidly expand domestic solar production and also bring key solar supply chains online. According to Abigail Ross Hopper, president and chief executive of the Solar Energy Industries Association, the bill intends to accelerate the transition to clean energy.
“The act will immediately spur private investments in production capacity across the solar supply chain, including batteries, helping to create thousands of manufacturing jobs and support our energy independence," Hopper said in written remarks after the act was passed.
The act also "includes important incentives that will, over time, lead to a renaissance in American solar manufacturing. As a direct result of the IRA, we expect to see significant new investments in domestic solar module, tracker, inverter and racking capacity within the next 2-3 years, followed by new investments in solar ingot, wafer and cell capacity within 3-5 years," according to the solar energy association.
Key beneficiaries of the IRA bill include First Solar, which manufactures solar modules for residences and businesses worldwide.
"For the first time, solar manufacturers would benefit from a durable, long-term industrial policy designed to revitalize and expand domestic manufacturing and innovation at scale," First Solar CEO Mark Widmar has declared in a written statement.
Guggenheim has raised FSLR stock to Buy from Neutral with a $135 price target while J.P. Morgan has upgraded it to Overweight from Neutral with a $126 price target, up from $83.
"Of all the names in our coverage, we believe First Solar appears positioned to benefit the most from the provisions of the Inflation Reduction Act that passed the Senate. Investors have not fully digested how transformational the IRA could be for FSLR's business," Guggenheim's Joseph Osha has written in a note to clients.
Meanwhile, Needham has picked First Solar and Sunrun Inc. as the biggest beneficiaries of IRA in the near-term and added that Enphase Energy Inc. and SolarEdge Inc. will also benefit from higher government spending and more solar adoption.
Meanwhile, analysts at Piper Sandler have upgraded Array Technologies Inc. shares to Overweight from Neutral with a $28 price target, good for 28.1% upside, saying they foresee an improved forward outlook for the renewable energy firm.
The analysts say they believe the company's $1.9B order book, along with historical book-to-bill ratios, lay the foundation for a strong revenue and EBITDA growth going into CY 2023. The analyst also sees the solar tracking systems manufacturer as a beneficiary of domestic content requirements and manufacturing credits in the IRA.
Array Technologies designs and manufactures solar ground monitoring systems. The company went public in October 2020 and managed to surge 45% on its first day of trading despite its upsized IPO pricing. The IPO valued the company at about $2.79 billion, but the scorching rally nearly doubled that to $5B. Unfortunately, missed profit expectations have seen ARRY shares fall out of favor with the investing universe and the company now sports a market cap of $3.3B.
By Alex Kimani for Oilprice.com
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