The green energy sector is in crisis and solar stocks surged after the Federal Reserve said it would keep short-term interest rates unchanged and forecast three cuts next year. The Fed's tapering program has recently increased to more than 4%, from about half a percentage point during the pandemic in recent years. However, with the Federal Reserve's less restrictive policy, there has been a shift in interest rates. The 10-year Treasury yield hit a 16-year high of 4.98% in October, but has now fallen to 3.91%.
Solar stocks have reacted strongly as lower interest rates are likely to have an immediate impact on volumes and margins in 2024. Shares of SunPower (NASDAQ:SPWR) rose 18.6% in the intraday session at 11:40 am (CET) on Thursday; Sunrun ( NASDAQ:RUN ) is up 21.4%, Sunnova Energy ( NYSE:NOVA ) is up 16.7%, and First Solar ( NASDAQ:FSLR ) is up 8.9%. Sellers in the solar market also posted notable gains, with Enphase Energy ( NASDAQ:ENPH ) rising 12.6% and SolarEdge Technologies ( NASDAQ:SEDG ) rising 15.0%.
Meanwhile, popular solar sector benchmark Invesco Solar ETF (NYSEARCA:TAN) rose nearly 10%, indicating that the wave is providing support to all investors.
Source: CNBC
This huge jump can be attributed to the fact that solar installations, especially in the rooftop market, are highly dependent on interest rates. Solar customers typically sign 20- to 30-year purchase agreements to purchase solar energy from an installer, typically with no down payment. The builder then sells tax credits or grants and finances these payments over a long period of time, just like we do with mortgages or bonds. Rising interest rates make this financing more expensive and reduce installers' margins unless they address the issue of rising prices. This is what fundamentally disrupted the solar industry after the Federal Reserve began raising interest rates to reduce inflation. Related: Three factors are behind the current negative sentiment towards natural gas
In general, renewable energy projects respond better to higher interest rates than other energy sectors. Additionally, the cost of renewable electricity rises faster when interest rates rise: the International Energy Agency found that a 5% increase in interest rates increases the country's levelized cost of electricity (LCOE), wind and solar. country, up to 33%. But for natural gas systems, this is minimal.
With many analysts predicting the Federal Reserve will cut interest rates three times by 2024, the time is suddenly right for the solar industry to grow.
Another record year?
Despite the lack of high interest rates, the US solar sector this year reported a 55% year-over-year increase in installed capacity to a record 33 GW, primarily as a result of strong growth in residential solar and the high prices of solar energy.
“The United States is now the dominant player in the global clean energy economy, and states like Florida, Texas, Ohio and Georgia are at the forefront of job growth and economic prosperity. The solar and storage industries provide abundant clean energy. "We're generating tens of billions of dollars in private investment, and that's just the tip of the iceberg," said Abigail Ross Hopper, president and CEO of the Solar Energy Industry Association.
But the popularity of solar energy is actually a global phenomenon. Earlier this year, the International Energy Association reported that capital investment in the global solar sector will exceed investment in oil production for the first time.
However, according to a recent report from the Solar Energy Industries Association (SEIA) and Wood Mackenzie, the US solar sector will grow 10% in 2024, largely hampered by high interest rates and the US net metering policy. California. The report comes ahead of the Federal Reserve's latest actions, meaning 2024 could be another miracle year for the solar sector.
California's new solar policy could spell trouble for the state, although it won't have a major impact nationally, as it represents less than 10% of installed capacity this year. Net Energy Metering 3.0 reduced the cost of solar credits by 75% to encourage customers to purchase solar panels on their solar systems. The new policy has drawn harsh criticism from solar equipment manufacturers and Californians because it discourages the use of solar energy and makes it cheaper.
However, EnergySage responded that the country's economic situation remains very good. This was primarily due to increases in electric rates by utility companies and the falling cost of solar systems.
By Alex Kimani for Oilprice.com
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