Why Have Solar Stocks Been Underperforming This Year?

-3.69%
Downside
168
Market
162
Trefis
FSLR: First Solar logo
FSLR
First Solar

Solar stocks have had a tough year so far, with the MAC Global Solar Energy Index declining by nearly 30% so far this year, compared to the broader S&P index, which has seen a modest year-to-date increase. This under-performance comes despite reasonably strong solar installation growth projections for 2016 (about 17% year-over-year, per IHS). Oil prices, which are often viewed as a proxy for energy prices in general, have also seen strong gains year-to-date. Below we take a look at some of the factors that have likely contributed to the weak performance of solar stocks.

  • December 2015 was a very favorable month on the policy front for the solar industry, as world leaders signed a landmark climate agreement in Paris, dubbed COP21, increasing the urgency to shift to renewable energy sources. Separately, the United States passed a spending package that included a multi-year extension of the crucial Solar Investment Tax Credit beyond 2016. Both these developments resulted in the MAC Global Solar Energy Index rising by 14% during the month. It is possible that the markets overreacted to these policy developments, leading to a correction in January 2016.
  • While the solar industry has seen a few years of relative supply-demand balance, there is a possibility that supply could outstrip demand going forward, impacting pricing and margins.  The global solar manufacturing industry announced capacity expansions (cell, module and thin film) to the tune of 49 GW over Q4’15 and Q1’16, according to PV Tech. This marks a significant jump over capacity expansion announcements of just about 16 GW in the year ago period. [1]
  • Trouble at two high-profile solar companies is also likely creating an overhang on solar stocks. SunEdison, the world’s largest renewable energy developer, filed for bankruptcy protection this April after it failed to sustain its debt-fueled expansion. Solar City, a residential solar installer, has also had its share of concerns, with the stock down by more than 50% this year amid installation guidance cuts and cost concerns.
  • The 2016 U.S. Presidential election cycle is also likely to be a factor weighing on solar stocks. While a Democratic win may be neutral for solar stocks as it could mark a continuation of the policies of the Obama Administration, a Republican win could hurt sentiment as Republicans have largely been against using incentives and taxpayer money to aid the development of renewable energy, instead favoring a market-based approach.
Relevant Articles
  1. Down 6% This Year, What’s Happening With First Solar Stock?
  2. Down 17% In The Last Six Months, Will First Solar Stock Recover Post Q4 Results?
  3. Up A Mere 15% In 2023, Is First Solar Stock Poised To Do Better In 2024?
  4. Down 30% From Highs Seen In May 2023, Where Is First Solar Stock Headed?
  5. Why Is The Hydrogen Theme Underperforming This Year?
  6. Why This Renewables Theme Is Underperforming In A Strong Market

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Global Solar PV Manufacturing Capacity Expansion Tops 22 GW In Q1, PV Tech, April 2016 []