What happened
Shares of Sunrun (RUN 3.04%) sank on Tuesday after a regulatory proposal threatened to slow the solar industry's growth.
As of 3:25 p.m. ET, Sunrun's stock price was down more than 13%.
So what
A draft of proposed changes to California's Net Energy Metering Program could drastically increase costs for consumers and eliminate "tens of thousands of jobs." So says Sunrun co-founder and co-executive chairman Edward Fenster, who lambasted the proposal as political chicanery.
It "represents California politics at its worst and loses sight of what constituents want -- innovation, control, and fast solutions -- in favor of propping up failed and stodgy incumbents," Fenster said in a press release.
Worse still, Fenster argued that the proposal will make it more difficult to battle climate change. He also cautioned that it could worsen pollution and increase the frequency and severity of blackouts.
Investors fear the sun is setting on California's solar market. Image source: Getty images.
Now what
Shareholders may be most concerned with Sunrun's warning that the proposal could "decimate" the market for solar power without battery storage. J.P. Morgan analyst Mark Strouse noted that roughly 35% to 40% of Sunrun's installations are in California, making the company particularly exposed to a downturn in the state's solar power market.
However, Strouse also noted that changes could still be made to the draft proposal that might make it more favorable to the solar industry. Additionally, Strouse believes higher potential costs to solar users could be offset by incentives designed to boost the usage of battery storage options. Thus, he maintained his overweight rating on Sunrun's shares.
