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Why Renewable Energy Stocks Plunged After the Election

By Travis Hoium – Updated Nov 4, 2020 at 1:24PM

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It's not the presidential race that caused concern for investors on Wednesday.

What happened 

Renewable energy stocks have had a strong run-up in advance of the election and are sharply reversing course now that we are getting results. First Solar (FSLR -3.63%) was down as much as 10.9%, JinkoSolar (JKS 1.54%) dropped up to 12%, SunPower (SPWR 2.46%) fell 14%, and Enphase Energy (ENPH 0.98%) fell as much as 10.7%. At 11:10 a.m. EST, the stocks were down 9.1%, 8.3%, 8.7%, and 4.4%, respectively. 

Ironically, it's not the presidential election that investors have their eyes on today. It's the Senate that has investors nervous about the future of solar energy stocks

Solar farm in the middle of a forest as the sun goes down

Image source: Getty Images.

So what

According to early results, presidential candidate Joe Biden still has a good chance to win the White House over President Donald Trump, and that's good news for solar stocks overall. But the president only has so much power to make policy for the solar industry, which would require Congress to enact any sort of sweeping policies or Green New Deal legislation. 

What's causing the reversal in solar stocks is the fact that it doesn't right now appear that Democrats will win the Senate. That chamber of Congress could block any solar policies that the House of Representatives and president want to pass, making at least the next two years tougher for the solar industry. 

Despite the fact that federal policies or incentives may not change much in the next two years, that doesn't fundamentally undermine the solar industry. The president controls tariffs and policies related to how solar energy will compete against fossil fuels, and those changes may be more important than subsidies from Congress. So if Biden wins, it would still be bullish for the solar industry. 

Now what

The reality is that the performance of solar companies and solar stocks was improving even before the election. Solar energy is cost-competitive with fossil fuels across the country, and companies are starting to see growth and margins pick up. At the same time, tariffs that hampered the industry starting a few years ago are starting to subside, and the result is an even more cost-effective solar industry.  

These broad trends aren't going to change no matter who is president or who controls Congress. And we've seen in the last four years that even a hostile administration hasn't been able to stop the solar industry from growing. 

Politics and elections may be able to drive solar stocks higher or lower short term, but it's the fundamental performance of the industry that will determine the trajectory of these stocks long term. And that trajectory is pointing to more growth, better profitability, and more market share versus fossil fuels, no matter what the political landscape looks like. And that's what investors should be looking at when considering solar stocks, which continue to have a bright future. 

Travis Hoium owns shares of First Solar and SunPower. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.

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