What happened
The energy industry has been thrown for a loop this week as Russia's invasion of Ukraine intensifies. The U.S. has said it won't import Russian oil, and corporate buyers have said they're divesting and/or not buying from Russia, putting immense pressure on oil markets as a result.
Shares of residential solar installer Sunnova Energy International (NOVA 7.88%) jumped as much as 18.5%. Solar manufacturer Canadian Solar (CSIQ 5.40%) was up as much as 15.8%, while hydrogen stocks Bloom Energy (BE 5.24%) and Ballard Power Systems (BLDP 4.45%) were up 15.1% and 16.4% respectively.
Image source: Getty Images.
So what
Global energy markets are clearly the biggest catalyst today, with Brent crude oil prices jumping 3.9% in trading today to $128.02 per barrel. Russia supplies about 11% of the world's oil, so if supplies from the country remain affected, it's likely there will be high prices for the foreseeable future.
As investors look for alternatives to oil, the solar and hydrogen industries are a natural place to put money, despite the fact that they're long-term solutions rather than having a short-term effect. It's also possible that lawmakers will see this as an opportunity to increase U.S. energy production, but that hasn't happened on a policy front yet.
As much as the market likes renewable energy stocks right now, it's worth pointing out that commodities like nickel, copper, and steel are up sharply this week along with oil, and they're inputs to renewable energy projects. If prices remain high, this will be a headwind for the industry's profitability.
Now what
I'm bullish on the renewable energy industry long-term, but I don't think days like this are a great time to buy. Stocks are up on little more than speculation that high oil prices will translate to better business conditions for solar and hydrogen companies in coming years. That may not be the case if oil prices come back down over the next month.
Instead, I look at how companies are growing revenue and earnings over time. SunPower and Bloom Energy are two that I think have solid strategies and improving revenue and margins. That said, I'm not buying the pop in their shares today.
What I will be watching for after Russia's invasion of Ukraine is the reaction of U.S. policymakers. It's possible that subsidies that have been pulled back in recent years will be put back on the table, including an extension of the investment tax credit. That would be fundamentally bullish for the industry, but it would still take years for any policy changes to hit the bottom line.
