Ever since the stock market started falling a few weeks ago, solar stocks have been plunging as well. In fact, the biggest solar companies in the world are down even more than the market.
You can see below that Sunrun (NASDAQ:RUN), Vivint Solar (NYSE:VSLR), SunPower (NASDAQ:SPWR), First Solar (NASDAQ:FSLR), SolarEdge (NASDAQ:SEDG), and Enphase Energy (NASDAQ:ENPH) are all down more than the S&P 500 over the past two and a half weeks. But I would argue that there are reasons to be more bullish on solar stocks after the sell-off.
Solar energy is a finance business
The reality is that solar energy is really driven by low financing costs. A solar installation will generate electricity for 30 or 40 years, but the investment to build it comes almost all up front, so low rates are important to drive value. In a sense, building a solar project is like creating a bond. So, what's happened to bond yields over the past few months?
Rates have plummeted, and for a while we weren't far from rates going negative in the U.S. As a result, financing for solar projects should be cheaper than ever.
Whether it's SunPower, Vivint Solar, or Sunrun financing residential solar projects or SolarEdge and First Solar supplying other installers, we should see demand for solar power plants rise as rates fall because low rates make solar energy even more economical.
Speaking about economics, solar may also see a boost in demand as customers look to find any kind of savings they can if the economy weakens. Residential installers often tout $0 down solar financing with monthly payments that lower a customer's total electricity bill.
Utilities will see benefits of low rates from solar developers as well. When rates fall, developers can offer a lower rate for the electricity they sell to utilities, which means it's more competitive with fossil fuels.
Developers large and small will benefit from low financing rates for solar projects. And that's a big reason to be bullish on solar stocks.
Don't be afraid of oil
One energy commodity that can be associated with solar energy is the price of oil, but that's not the right way to look at the competition in energy. The fact that oil has dropped to nearly $30 per barrel will make it cheaper to fill up your gas tank, but it won't affect the cost of electricity, which is where solar energy competes.
The better commodity for this comparison is natural gas, but even that has its flaws. Over the past decade, natural gas prices have dropped by more than 50%, and yet solar energy production has increased more than 500%.
Cheap financing may be the biggest driver of solar energy projects in the U.S. and around the world, and will drive the industry more than changes in commodity prices will.
Now is the time to jump into solar energy
There are industries that will come to a halt because of the COVID-19 pandemic, but I don't think solar energy will be one of them. The industry is offering cost savings that customers value and is growing because it's competing with traditional energy sources, now that it's a low-cost provider of electricity. Those fundamentals don't change during a pandemic and make renewable energy stocks a great buy right now.