What happened
Shares of solar energy stocks jumped last month as investors saw some bullish moves from a subsidy perspective and the incoming presidential administration.
According to data provided by S&P Global Market Intelligence, Enphase Energy (ENPH +2.76%) jumped 28.5% in December, Canadian Solar (CSIQ +13.46%) was up 19.8%, and Maxeon Solar Technologies (MAXN +0.00%) rose 16.2% last month. And all three stocks continued to rise in early 2021.
Image source: Getty Images.
So what
The biggest news of the month was a two-year extension of the solar investment tax credit at 26%, which is where the credit was in 2020 before an expected step-down to 22% in 2021. This extension will make solar installations large and small more economical, which should help grow the industry.
Outside of some developments in the U.S. from Canadian Solar, these three companies are actually component suppliers to the developers that will use this tax credit. That doesn't mean they won't benefit from higher demand and greater utilization of their factories, but it should be noted that they aren't typically the ones getting these credits.
Overall, solar energy stocks have shot higher over the past few months on growing hope that a Democratic administration and Congress will pass more favorable policies over the next two to four years. The investment tax credit was a small sign that these policies can pass even in a bipartisan fashion.
Now what
Solar energy stocks have been on fire for six months, and December's gains were a continuation of that. But this time there was a concrete benefit in the investment tax credit extension for solar projects. That will make every solar project more cost-effective and should help with demand for solar panels and inverters, which is what Canadian Solar, Enphase Energy, and Maxeon Solar make.
Early this month, the gains continued because of the two Democratic wins in Georgia. With the Senate now in Democratic control, President Biden can put in place his preferred political appointees; in the case of the solar industry, the important appointments will be at the Federal Energy Regulatory Commission, or FERC. It's FERC that sets the rules for utilities across the country and, if the commission can make rules more favorable for solar energy, that could be a boon for the industry.
It's hard to know if solar stocks have run too far, too fast, but in a hot market these are still some of the hottest stocks out there. Buyer beware, though, if the hot streak suddenly ends if growth doesn't live up to expectations in 2021.
