What: Shares of SunPower Corporation (NASDAQ:SPWR) and its yieldco 8point3 Energy Partners (NASDAQ:CAFD) jumped 25% and 32% respectively in December after the U.S. Congress passed a solar investment tax credit extension.
So what: The ITC was extended at 30% through 2019 with a gradual reduction until it reaches 10% in 2022 (details here). SunPower was one of a few companies that would have been able to adapt to an ITC reduction by shifting production overseas and to higher margin markets in the U.S. But an extension means the U.S. market will continue to grow, and SunPower will be able to build high margin projects here at home.
The extension also helps 8point3 Energy Partners because it'll allow SunPower and co-sponsor First Solar the ability to drop down projects, leading to dividend growth in the future.
Now what: Solar stocks have been in a holding pattern for more than a year with the ITC reduction on the horizon. But the extension will give the company more certainty, and likely higher margins, in the future because of its track record of developing projects. While the jump in both stocks was big in December, I think more market beating performance is coming in 2016.
Travis Hoium owns shares of 8point3 Energy Partners LP, First Solar, and SunPower. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.