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Why Residential Solar Stocks Jumped Today

By Travis Hoium - Jan 6, 2021 at 3:21PM

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Georgia's runoff election results are seen as great news for the solar industry.

What happened 

Solar energy stocks went on a tear today, with many climbing by double digits. Residential solar was one of the biggest beneficiaries, continuing a great run for the sector. 

Shares of SunPower ( SPWR -5.34% ) led the way, climbing as much as 27.9%, while Sunnova's ( NOVA -5.00% ) shares soared 12.7% and Sunrun ( RUN -7.17% ) gained 16.3% at its high. The three stocks were up 23.7%, 9.7%, and 15%, respectively, as of 2:25 p.m. EDT. 

Home with a large solar installation on the roof.

Image source: Getty Images.

So what

The market's reaction today was because the two (likely) Democratic wins in Georgia's Senate runoff races would give the party full control of Congress. That would allow President-elect Joe Biden to implement more of his policies and get appointments through the Senate as well. 

From a policy perspective, investors have hoped for the last six months that a Democratic administration would push for more favorable renewable energy policies. Some of that has already come to fruition, with a two-year extension of the investment tax credit for solar projects included as part of the most recent stimulus package. 

More important may be Biden's ability to get appointments through the Senate. The Federal Energy Regulatory Commission, which makes the rules for utilities across the country, is now in Republican control, but that will change in mid-2021 when Chairman Neil Chatterjee's term ends. Biden can now nominate a more liberal appointee, who may have been blocked by the Senate if it were under Republican control.

Regulatory appointments may not sound exciting, but they're extremely important for the renewable energy industry. Regulators decide how wind and solar are treated in electricity markets, and they are going to be critical in creating rules for energy storage and efficiency technology, which could see a boom over the next decade. The market sees Democratic control of the White House and Congress as very bullish for the future of solar energy -- and residential energy storage, in particular. 

Now what

The election results were clearly good news for solar companies, and I do see positive policy changes coming to the industry. But it's unlikely a big green energy package is going to pass Congress given what conservative Democrats has said about these policies, so there may only be small wins for residential solar companies. That means the gains we've seen over the last six months may be overdone if these companies don't grow rapidly next year. 

I'm bullish on the solar industry over the next decade, but am also cautious given how fast solar stocks have risen. We've seen big gains before only to be let down, so buyers should be aware of that risk today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$27.12 (-5.34%) $-1.53
Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$42.74 (-7.17%) $-3.30
Sunnova Energy International Inc. Stock Quote
Sunnova Energy International Inc.
NOVA
$35.12 (-5.00%) $-1.85

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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