Our solar energy stocks , which include solar panel manufacturers, system installers and component suppliers, are down about 30% this year through 2023, compared with the S&P 500, which is up about 18% over the same period. While solar energy stocks have performed well during the coronavirus pandemic, helped by government stimulus and loose monetary policy, rising interest rates appear to have slowed growth. Higher tariffs have made rooftop solar projects more expensive to finance and less efficient than grid power. This is especially true in states with low energy costs such as Arizona and Texas. In addition, policy headwinds such as changes to net metering policies in California (the US state with the largest solar installations) appear to be weighing on stocks that are exposed to the housing market. Stagnation in the residential rooftop solar market has led to revenue challenges and mixed short-term prospects for players such as SunPower and Enphase Energy.
Notably, since the start of 2017, SPWR stock has had a Sharpe ratio of 0.4, which is lower than the S&P 500 index's 0.6 over the same period. Compare this to the Sharpe ratio of 1.2 for the Trefis Extended Value Portfolio. Sharpe is a measure of return per unit of risk, and high-return portfolios can offer the best of both worlds.
However, there are some long-term positives for the solar industry. The solar industry's biggest win comes from the Inflation Relief Act, which was signed into law in August 2022 and provides about $370 billion in subsidies and credits for clean energy investments. For example, the first solar energy.
Among other challenges, First Solar has been the best performer, with its shares up 28% this year as the company's residential panels outperform utility projects, which are expected to outperform this year. On the other hand, SunPower, which focuses primarily on the residential solar business, has performed worse, with its shares down nearly 60% this year.
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