Diesel stocks outperformed the S&P 500 this year by their biggest deviations between June and August. The S&P 500 fell 17% and the Nasdaq 100 fell 26%, but solar stocks led the tech industry as Enphase Energy rose 72%, Maxeon Solar Technologies gained 62% and First Solar rose 56%. Academic year.
Similarly, we can see in the chart below that the Invesco Solar ETF ( TAN ) is up 13% YTD, the iShares Global Clean Energy ETF ( ICLN ) is up 7% YTD, and other popular ETFs, especially Innovators, have advanced. The IBD 50 ETF (FFTY) is down year-to-date (39%), while the Cloud Computing ETF (CLOU) is down (36%).
There are two other catalysts that could boost diesel stocks this year. The first is the Inflation Relief Act, which is expected to provide $369 billion for energy security and climate change. John Haley, Morningstar's head of global sustainability research, said the clean energy ETF saw net outflows of $223 million in the two weeks before the July 27 announcement and $434 million afterward.
The second catalyst is the energy crisis in Europe. Natural gas prices are rising, which will change the game for alternative energy. In some cases, the base price of electricity in France, Spain, Italy and Germany has quadrupled or worse in a year, with one expert saying it's "like paying $500 a barrel of oil". We cover this in detail below.
On reducing inflation until 2022The Inflation Reduction Act of 2022 aims to reduce the budget deficit, invest in domestic energy production and manufacturing, reduce health care costs, and reduce carbon emissions. Our main goal is to watch the clean energy industry when the IRA opens.
The legislation is expected to raise $737 billion through corporate tax increases, prescription drug reform and IRS tax cuts. Most of that would be used to reduce the overall $300 billion deficit for Energy Security and Climate Change ($369 billion) and the Affordable Care Act ($64 billion). The bill, passed by the Senate and the House of Representatives, was finally signed into law by President Joe Biden on August 16.
The gains would mostly come from $265 billion that would allow Medicare and others to negotiate drug prices with drug companies, $222 billion from a new 15% tax that brings in $1 billion annually, $124 billion from tighter regulations companies. IRS tax lien and 1% fees on $74 billion in stock purchases.
A centerpiece of the bill is a $369 billion investment in energy security and climate change with the goal of reducing carbon emissions by 40% by 2030. According to Morningstar analyst Brett Caselli, investors should focus on three main points:
"First, the legislation provides for a 10-year extension of the tax credit for solar and wind energy. The credit expires in the next few years, and the 10-year rule gives clean energy companies plenty of time to build and deploy new capacity.
Second, it includes incentives to support new technologies that were not previously subject to tax incentives. Hydrogen and energy storage are two areas that we believe will benefit the most.
Thirdly, the law stimulates the domestic production of solar panels and devices, which were previously mainly imported. The provisions of this Law significantly increase support for domestic production of solar modules and inverters."
As already mentioned, the beneficiaries are electric cars. The previous federal tax credit available to electric vehicle buyers will be replaced by the Inflation Reduction Act of 2022. Companies like Tesla and General Motors, which lost the $7,500 income tax credit if they sold more than 200,000 electric cars, are eligible again because the 200,000 electric car sales threshold has now been removed.
Specifically, the maximum retail value is $55,000 for cars and $80,000 for vans and trucks. There are also other income requirements and important requirements for minerals and battery components for buyers US President Joe Biden said. "It gives consumers a tax credit when they buy an electric or fuel cell vehicle, new or used, and a tax credit of up to $7,500 if the car is made in America."
The solar industry will benefit as the Inflation Reduction Act includes provisions to extend the Production Tax Credit (PTC) and Investment Tax Credit (ITC) for the construction of wind and solar projects through January 1, 2025. This means a three-year extension of the PTC. and one year extension for ITC.
It also extends the 30 percent federal tax credit for installing rooftop solar panels for an additional 10 years from 2022 to 2032. In 2020 and 2021, solar panels can receive a 26 percent installation tax credit. Now it will be extended until 2032. The tax rate is 30 percent. %. Tax credits and exemptions will be reduced to 26% in 2033 and to 22% in 2034. After that period, the tax credit is gone until Congress extends it Home battery systems that store energy from solar panels are also eligible for a 30% tax credit.
The Inflation Support Act creates new tax incentives for the domestic production and sale of solar and wind components. The tax credit is expected to expire at 25% for components sold after December 31, 2029, with no credit at the end of 2032.
European energy crisisThe chart below shows the futures market for baseload energy prices in France a year ago. Base load refers to the minimum power requirements to support the network and does not include peak power.
The price on August 26, 2022 is $1,130/MWh 24 days ago it was €507/MWh. And a year ago, the same forward price was EUR 78/MWh. Note that this is the expected cost of getting baseload to the French grid one year from now.
This is not just a French problem. The same agreement on the increase of the expected value of the base load of the country's energy supply for 1 year in percentage is: Italy +660%, Spain +400%, Germany/Austria +1200%. Alex Manton, a global gas market expert at Rapidan Energy Group, said: "European natural gas is as expensive as paying $500 for a barrel of oil."
To make matters worse, the French government bailed out Electricity de France SA (EDF), Europe's largest supplier of nuclear energy and, through its subsidiaries, the main supplier of natural gas to France, Belgium, Italy and the UK. The €10bn bailout nationalized the company 100% as the French government tries to tackle the EU's energy crisis.
EDF is one of the EU energy companies applying for emergency loans as rising natural gas prices hit EU supplies. Uniper SE, one of Germany's largest utilities, just received a new bailout that allowed the German government to take a 30 percent stake in the company. Sustained losses are unsustainable as rapid increases in energy costs eliminate the liquidity needed to fund day-to-day business.
Uniper is the largest supplier of Russian gas to Europe. They say Russian gas supplies have fallen 80% this year since June, forcing them to seek alternative energy sources at higher prices to meet demand.
The solution to the crisis in France is to impose a price cap on fuel for its citizens. Political populist politics, the results of which we see in EDF. This price cap forces utilities to buy more and sell less. As a result, France will have to commit €40 billion by 2022 to keep EDF running this year. Since then, electricity prices have more than doubled, and future prices are expected to nearly quintuple by 2023. If France sticks to the price cap, it will target another €200 billion to keep EDF at its current price cap for the winter.
Although energy prices continue to rise, European Union officials are calling for price increases around the world. Continue to subsidize/nationalize EU energy suppliers or be forced to accept that many citizens cannot meet their basic energy needs for cooking and heating in the early autumn/winter.
How can a historically safe European energy company go bankrupt when energy demand far outstrips supply? This goes back to the conflict between Russia and the European Union. In 2020, Russia supplied 40% of natural gas to Europe. In 2022, the EU opposed Russian imports for the invasion of Ukraine.
In July 2022, supplies of Russian natural gas to the European Union decreased by 60% with the onset of autumn and winter. In addition, the Nord Stream 1 gas pipeline, which accounts for 1/3 of Russian natural gas imports to the EU, received about 1/5 of normal flows this year. As a result, the basic cost of electricity in the EU has reached a price that most citizens cannot afford.
Just as the 2008 banking collapse in the US almost led to the nationalization of the industry, the EU appears to be moving in the same direction as its energy companies. With the multi-year transition to a green energy grid and the sudden loss of Russian energy supplies to the EU, it appears that there will be no viable options to avoid blackouts in the coming fall/winter months.
Conclusion:The NDX is down 26% for the year, marking one of four years in the past two decades that the broad tech index has posted double-digit losses. But there are also areas of growth in this market, and solar is a leader in this area.
In addition to the sector's excellent performance over the past few months, we expect its leading position to continue thanks to two catalysts that will pave the way for global demand for renewables. Next week we will be releasing premium in-depth reports on individual stocks for our premium members with a focus on solar.
I/O Fund Portfolio Manager Knox Ridley and I/O Fund Equity Analyst Royston Roche contributed to this article.
Please note: I/O Fund conducts research and draws conclusions for its portfolio of companies. We then share this information with our readers and offer real-time trade alerts. It is not a guarantee of stock performance or financial advice. Please consult your personal financial advisor before purchasing shares of the companies mentioned in this analysis. Beth Kindig & I/O Fund does not own the stocks discussed in the analysis at the time of writing, although Beth Kindig & I/O Fund may own the stocks depicted on the chart. I/O Fund and Beth Kindig do not plan to open new positions in the next 72 hours.
