What happened
Shares of solar energy stock Enphase Energy (ENPH -5.63%) fell as much as 7.2% in trading on Thursday after the Federal Reserve released minutes from its most recent meeting. Shares gained back some of what they lost as the day went on, but were still down 3.6% for the day.
So what
The Federal Reserve said in minutes from its most recent meeting that it may need to raise rates sooner than expected. As a result, yields rose in the market with the 10-year Treasury rising two basis points today, and yields are now up 29 basis points over the past month.
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Solar energy stocks are highly impacted by interest rates because projects are financed over the course of 20 to 30 years. If rates rise even a small amount it can reduce the value of those long-term cash flows, which makes projects worth less.
Now what
Enphase isn't directly impacted by interest rates because it's selling components to developers, but there is a downstream impact. If rates do rise in 2022 we could see demand for solar energy fall as well. That said, rising rates have been a concern for most of the last decade and yet solar has continued to grow. So I wouldn't be too worried about interest rates because solar is becoming more cost competitive even as rates rise.
