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After a Tough 2023, Solar ETFs Likely to Make a Comeback in 2024
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In 2023, solar stocks met with several challenges. Firstly, the Federal Reserve's decision to hike interest rates to combat inflation resulted in higher borrowing costs for solar companies. This made it more expensive for them to finance their projects, reducing profitability and investor confidence.
Secondly, consumers were cautious about investing in solar installations, partly because of the uncertain economic environment caused by the interest rate hikes. The double whammy contributed to a tough year for solar stocks.
Plus, a specific policy change that aggravated the issues facing the solar industry was a reduction in solar energy incentives in California. California, a major hub for solar energy adoption, decided to decrease the subsidies provided to rooftop solar panel owners who fed excess power back into the grid. This change lowered the financial incentives for residential solar installations in the state, impacting the overall health of the solar industry in the United States.
In 2023, the performance of solar stocks has been quite dismal. Key benchmarks in the solar and wind energy sector, such as the Invesco Solar ETF (TAN - Free Report) and Global X Solar ETF (RAYS - Free Report) , have experienced significant declines. TAN is down 36% year-to-date, while RAYS has lost about 43% during the same period (as of Dec 8, 2023).
Wall Street Sees Hope in Solar Industry for 2024
Despite the challenging year in 2023, Wall Street analysts are cautiously optimistic about the clean energy industry's prospects in 2024. For example, Morgan Stanley analysts have taken a positive stance by upgrading First Solar (FSLR - Free Report) to an "Overweight" rating and increasing its price target. They believe that First Solar offers an attractive risk-reward profile, mainly due to its solid backlog and position in the thin-film module manufacturing sector, as quoted on Yahoo Finance.
Citi analysts too have identified specific investment opportunities in the solar sector. Citi's recommendation is based on factors like the growing importance of emission reduction goals and the likelihood of higher solar equipment production.
Chances of Lower Interest Rates in United States in 2024
The market's expectation of lower U.S. interest rates should boost solar stocks in 2024. As inflation eases and the labor market stabilizes, investors anticipate that the Federal Reserve may start cutting interest rates. If this takes place, it could result in improved valuations for clean energy companies.
Signs of Cost Deflation in Solar Industry
There are signs of cost deflation in recent times. The prices of critical components, including solar panels, battery storage systems, and inverters, have started to decrease. This trend is a positive development for solar developers, as it potentially lowers project costs and increase profitability.
US-based solar equipment manufacturers are poised to increase their market share in the global solar industry. Especially, the Inflation Reduction Act (IRA), which incentivizes the use of solar power by supporting local manufacturing, is a plus for the space (read: 5 ETFs Poised to Benefit from the Inflation Reduction Act).
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After a Tough 2023, Solar ETFs Likely to Make a Comeback in 2024
In 2023, solar stocks met with several challenges. Firstly, the Federal Reserve's decision to hike interest rates to combat inflation resulted in higher borrowing costs for solar companies. This made it more expensive for them to finance their projects, reducing profitability and investor confidence.
Secondly, consumers were cautious about investing in solar installations, partly because of the uncertain economic environment caused by the interest rate hikes. The double whammy contributed to a tough year for solar stocks.
Plus, a specific policy change that aggravated the issues facing the solar industry was a reduction in solar energy incentives in California. California, a major hub for solar energy adoption, decided to decrease the subsidies provided to rooftop solar panel owners who fed excess power back into the grid. This change lowered the financial incentives for residential solar installations in the state, impacting the overall health of the solar industry in the United States.
In 2023, the performance of solar stocks has been quite dismal. Key benchmarks in the solar and wind energy sector, such as the Invesco Solar ETF (TAN - Free Report) and Global X Solar ETF (RAYS - Free Report) , have experienced significant declines. TAN is down 36% year-to-date, while RAYS has lost about 43% during the same period (as of Dec 8, 2023).
Wall Street Sees Hope in Solar Industry for 2024
Despite the challenging year in 2023, Wall Street analysts are cautiously optimistic about the clean energy industry's prospects in 2024. For example, Morgan Stanley analysts have taken a positive stance by upgrading First Solar (FSLR - Free Report) to an "Overweight" rating and increasing its price target. They believe that First Solar offers an attractive risk-reward profile, mainly due to its solid backlog and position in the thin-film module manufacturing sector, as quoted on Yahoo Finance.
Citi analysts too have identified specific investment opportunities in the solar sector. Citi's recommendation is based on factors like the growing importance of emission reduction goals and the likelihood of higher solar equipment production.
Chances of Lower Interest Rates in United States in 2024
The market's expectation of lower U.S. interest rates should boost solar stocks in 2024. As inflation eases and the labor market stabilizes, investors anticipate that the Federal Reserve may start cutting interest rates. If this takes place, it could result in improved valuations for clean energy companies.
Signs of Cost Deflation in Solar Industry
There are signs of cost deflation in recent times. The prices of critical components, including solar panels, battery storage systems, and inverters, have started to decrease. This trend is a positive development for solar developers, as it potentially lowers project costs and increase profitability.
US-based solar equipment manufacturers are poised to increase their market share in the global solar industry. Especially, the Inflation Reduction Act (IRA), which incentivizes the use of solar power by supporting local manufacturing, is a plus for the space (read: 5 ETFs Poised to Benefit from the Inflation Reduction Act).