What happened
Shares of ReneSola (SOL +0.00%) had a rough week this week, falling 14.5% as of 1:00 p.m. ET, according to data provided by S&P Global Market Intelligence. The company didn't report any major news, but there was one big driver of solar energy stocks selling off this week.
So what
The biggest news this week is rising interest rates. According to the U.S. Department of the Treasury, the 10-year Treasury rate increased from 1.46% on Nov. 9 to as high at 1.63% on Nov. 16. Rates closed at 1.59% on Thursday evening, but the trend higher is noticeable.
Image source: Getty Images.
An increase in interest rates may not seem like a big deal, but for a developer it can cause margins to decrease rapidly. I highlighted this in detail here, but even a 1% increase in rates investors command for a solar project can cause the value of the project to fall nearly 10%. If rates continue to move higher as the cost of building solar projects goes up, margins for companies like ReneSola are going to be smaller.
Now what
It's not unusual for renewable energy developer stocks to react quickly to rising or falling interest rates. This week it just happened to be that ReneSola and the renewables industry overall was on the wrong side of rate movement. I wouldn't change your long-term thesis on a company like this with interest rate moves alone, but they're worth watching because if rates move higher for a long period of time it would be a big headwind for developers.
