Shares of some solar energy stocks have moved sharply higher this week, in large part due to trade restrictions put in place by the Biden administration. First Solar (FSLR -0.59%) is up 9.8% so far this week, SunPower (SPWR -1.85%) has risen 9.5%, and Maxeon Solar Technologies (MAXN -1.78%) has jumped 9.8% for the week.
The catalyst was the Biden administration banning products from four Chinese solar manufacturers in the Xinjiang province, which has been accused of using forced labor. Manufacturing primarily consists of polysilicon, which is a raw material for solar cells used around the world and could have a wide-ranging impact on the solar supply chain.
Solar manufacturers have gone through a number of trade challenges in the past decade as restrictions have come and gone around the world. This is the latest chapter, but it could have a broad impact because a relatively small number of large manufacturers supply polysilicon to the world's largest solar manufacturers.
While the impact on solar companies isn't entirely clear, the biggest winner will likely be First Solar, who doesn't use polysilicon as an input and has about enough capacity to supply most of its demand in the U.S. market with domestic supply made in Ohio.
The impact on SunPower and Maxeon is a little less clear. Polysilicon is a raw material input for Maxeon and the company has a fixed price commitment to buy polysilicon from a small number of suppliers, which may or may not be affected by this ban. Given the fixed cost contracts, Maxeon could have some upside if polysilicon prices rise outside of the Xinjiang factories.
In theory, some of the cost advantage Maxeon sees could also be felt by SunPower through its contractual agreement to buy solar panels for residential and commercial solar projects from its spinoff Maxeon. That may be a bit of a leap given the myriad suppliers other solar installers have to choose from, but if solar panel prices rise globally as a result of these restrictions it could help SunPower's costs versus competitors'.
We have seen tariffs and trade restrictions in different parts of the solar supply chain over the past decade and there always seems to be a way around them. This time, polysilicon made in Xinjiang factories could simply be sold to panel manufacturers selling to other parts of the world with non-Xinjiang supply going to the U.S. market.
The impact will likely be limited for both manufacturers and installers long-term, despite how bad the trade ban sounds right now. First Solar could see an incremental benefit from developers looking to reduce risk and buy domestically produced solar panels, but that's already a selling point of its manufacturing strategy.
Solar energy stocks may be reacting positively to the news today but investors should be prepared for very little impact long-term, even if there's some upheaval in the solar supply chain in the next few months.