What happened
Shares of solar energy stocks had another outstanding day on Monday after Congress agreed to a large stimulus package that should help the industry. Shares of JinkoSolar Holding (JKS -0.34%), ReneSola (SOL -1.63%), and SunPower (SPWR -3.09%) jumped as much as 11.4%, 15.7%, and 9.2%, respectively. They closed the day up 9.2%, 15.7%, and 8%, respectively.
Enphase Energy (ENPH 0.62%), another solar stock, moved 4.7% higher after trading 2% lower early in the day.
Image source: Getty Images.
So what
The solar industry is cheering some assistance it will get from the agreed-to stimulus package going through Congress at the moment. The deal includes $35 billion for energy research and development and a two-year extension of the investment tax credit (ITC) for solar power developments. The tax credit will remain at 26% for the next two years before stepping down to 22% in 2023.
Developers like JinkoSolar, ReneSola, and SunPower take advantage of the tax credit by selling what's known as tax equity to investors, who offset their own tax liabilities with the asset. This helps pay for a large portion of solar projects, from rooftop solar systems to utility-scale projects.
The extension is especially important for utility-scale developers who can often complete projects years after they commence construction, taking advantage of the full 26% tax credit potentially into 2025.
Another potential impact for solar companies will be increased investment in energy storage. The package sets aside $1.1 billion for energy storage over the next five years, $2.4 billion for modernizing the grid (which could help storage), and another $6.2 billion for reducing emissions at power plants. All of these funds could help energy storage technologies, which ultimately help solar power plants be more valuable to the grid long term because they enable power to be used at off-production times.
Now what
Investors continue to push solar energy stocks higher on speculation that these incentives will be good for finances long term. But keep in mind that it'll likely take years for these incentives to help the bottom line for solar companies.
Investments in technologies like energy storage can have an even longer horizon before an impact will be felt. Solar companies are starting to include batteries with some developments, but they're far from mainstream. And utilities and regulators are notoriously slow to change, so we could be looking at a decade before the announced R&D funding has any real impact.
While I think the stimulus is going to be good for solar companies long term, we need to keep in mind that 2021 won't likely see much of an impact. Solar projects can take years to develop so the biggest impact may be two or three years down the road. If you're a Foolish long-term investor, that's great news.
