Shares of residential solar installer Vivint Solar, Inc. (NYSE:VSLR) jumped 14.1% in December, according to data provided by S&P Global Market Intelligence, after the worst-case scenario failed to come true during the tax negotiations. This wasn't a bullish month for Vivint's fundamentals, but was an acknowledgement that the business will be able to continue as it was operating previously.
There were provisions written in the Republican tax bill that would have made it difficult for solar companies to raise tax equity -- financing that allows a profitable company to use tax deductions against their tax bill. But the worst provisions were pulled from the bill at the last minute, which was a relief for solar installers.
The lower tax rate will make tax equity less valuable, so the bill wasn't all good, but it could have been worse for solar companies.
The next challenge facing Vivint Solar is potential solar tariffs due to come out later this month. If high tariffs are placed on solar imports, costs for solar installations could increase, which would either force Vivint Solar to raise prices or squeeze its margins. Look for early 2018 to be another wild year for Vivint Solar, despite its improving operations the last few quarters.