Despite the Green Energy Boom, Solar Stocks are Not Doing Great

Solar stocks have failed to gather momentum despite the industry experiencing continued growth.

While the solar power industry has experienced tremendous growth, the performance of solar stocks has not met expectations. Falling prices, concerns about overcapacity, and shifts in investment preferences have contributed to the slump in share prices. 

Solar Industry Continues Growth, But Solar Stocks Fail to Gain Momentum 

The solar industry has experienced continued growth in recent years. However, despite the surge in demand driven by government climate targets and energy security concerns, solar companies are struggling to gather momentum.

Longi Green Energy Technology, the world’s largest solar equipment maker, has seen its share price drop by 54% since July 2022. This came after the company saw a more than fivefold increase in its share price between 2020 and late 2021. 

Other major solar companies, including Trina Solar, JA Solar Technology, and Jinko Solar, have also experienced significant declines. Moreover, the combined value of China’s four largest panel producers has dropped by over 40% since August.

The downturn began in the second half of 2022 when new factories came online, resolving polysilicon production bottlenecks, a key material used in solar panels. This led to a decline in prices throughout the supply chain, compressing profit margins. 

In addition to price pressures, fund flows have also contributed to the solar stock slump. Investors have been increasingly drawn to emerging sectors like artificial intelligence, diverting funds away from clean energy companies. This shift in investment preferences has impacted the performance of solar stocks.

Solar Manufacturers Expand Their Capacity, But Installations Drop

Manufacturers have been expanding their production capacity across the solar equipment value chain, further exacerbating concerns about overcapacity. There are enough factories to produce 657 gigawatts of solar modules annually, with an additional 336 gigawatts announced or under construction. 

However, total installations for this year are only projected to reach 344 gigawatts, raising concerns about the industry’s ability to absorb the excess capacity. Longi recently warned that more than half of China’s solar manufacturers could face significant challenges unless there is a sharp increase in demand. 

While the solar industry faces challenges, some companies have managed to weather the storm. First Solar, a US-based firm producing a smaller volume than its Chinese counterparts, has seen its shares more than double in the past year. The company is expected to benefit from the Biden administration’s Inflation Reduction Act, which has generated optimism among investors.

Government Initiatives Drive Growth in Solar Power

The green energy boom is not limited to increased demand for solar power alone. Governments worldwide have been implementing initiatives to support renewable energy and reduce carbon emissions, according to an analysis by Bloomberg.

The utility-scale clean energy sector has announced significant investments in the United States, with numerous solar, wind, and battery manufacturing facilities being established. These initiatives are expected to create jobs and drive further growth in the renewable energy sector.

One reason manufacturers invest in factories outside China is the US imposing tariffs on panels made in Southeast Asia starting in June 2024. While the US is projected to experience a surge in solar installations, China is expected to maintain its lead due to its industry scale and supply chain advantages.

“BloombergNEF estimates that U.S. solar installs will surge but still lag China,” the analysis said. “While the U.S. is projected to install 34 GW of solar capacity in 2023, up from 24 GW last year, China is projected to add 209 GW.”

Despite solar stocks’ current challenges, analysts remain optimistic about the future. Given the global focus on renewable energy and the need to combat climate change, they predict notable gains in the coming year.

Meanwhile, some of the more promising solar stocks in the US include First Solar, a global leader in developing solar energy solutions, Brookfield Renewable, a renewable energy yieldco, and SolarEdge Technologies, which manufactures power optimizers and inverters used to convert the sun’s energy into electricity. 

—

Originally Posted September 6, 2023 – Despite the Green Energy Boom, Solar Stocks are Not Doing Great