Shares of stocks in the solar industry took a nosedive once again on Thursday as the broader market continued to fall. Solar manufacturers SolarEdge Technologies (NASDAQ:SEDG) dropped as much as 21.5%, SunPower (NASDAQ:SPWR), fell up to 22%, and First Solar (NASDAQ:FSLR) plunged 11.4%. At 1:45 p.m. EDT, shares had recovered some and were down 11.5%, 16.3%, and 2.8% respectively.
Solar stocks falling is one thing, but it may be more concerning that yieldcos and renewable developers like TerraForm Power (NASDAQ:TERP) lost 17.1% early today, NextEra Energy Partners (NYSE:NEP) dropped 20%, and Hannon Armstrong (NYSE:HASI) plunged 19.4% early. Shares of the companies were down 10.7%, 12.5%, and 14.4%, respectively, at 1:45 p.m. EDT.
Major market indexes are down around 7% Thursday so it's no surprise that a volatile industry like solar energy is down big as well. But there are concerns on the financing side of the business that investors will want to pay attention to.
The Federal Reserve on Thursday said that it'll inject $1.5 trillion of temporary liquidity into the market to avoid "unusual disruptions." The concern is that credit markets will freeze up and ultimately bring the economy to its knees.
For solar companies, the concern is that financing for projects in development will dry up. It's usually banks and large companies that are financing solar projects in one form or another so the freezing of credit markets or a drop in earnings may mean a loss of demand for solar development financing. Ultimately, that loss of demand will make its way from yieldcos to hardware suppliers like SolarEdge, SunPower, and First Solar.
Short term, there's reason to be worried about the economy and credit markets, which both affect solar companies. But I think long term, the fundamentals of solar energy will win out, especially if interest rates stay low.
Solar energy is ultimately less expensive than fossil fuels as a producer of electricity because the up-front costs have fallen dramatically over the last decade and financing the long-term cash flows is cheap. For the time being, it doesn't appear that either of those factors are going to change anytime soon.
If you're a long-term investor willing to buy and hold stocks for a decade or more, now may be the time to start buying solar stocks. They're taking market share from fossil fuels and growing in large- and small-scale installations. That's a winning formula long term, even if the ride will be rocky in the short term.