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Renewable Energy Tax Credit Extended: Solar Stocks Rally

Renewable energy stocks are beaming. First, the historic Paris climate change summit and now Congress' vote to extend federal subsidies for renewable energy have perked up the space.

Solar and wind energy got a major boost from Wednesday's environmental tax credit extension that came as part of the $1.15 trillion federal spending bill, which prevented a government shutdown and lifted the 40-year-old ban on exporting American crude oil.

The Extension

The legislation entails solar power companies to keep claiming federal investment tax credits ("ITC") at 30% of the price of solar energy systems installed by businesses or homeowners. ITC, which was set earlier to expire at the end of 2016, will look good through 2019. This is because the latest deal approves an additional five years of ITC. However, the credit will start to decline, slashing it to 10% in 2022. The deal still needs approval from lawmakers, which is expected as soon as this week.

Additionally, the wind sector also benefited significantly from the production tax credit ("PTC") extension. The PTC pays 2.3 cents per kilowatt-hour of electricity generated and technically expired at 2014 end due to Congressional gridlock. Now, the PTC will be extended through 2020 but will be gradually decreased over the next four years before being completely phased out.

Brighter Days Ahead

Globally, utilization of renewable energy is rising primarily courtesy of its clean nature and a growing awareness among the masses regarding its benefits. The Paris climate deal, inked with the support of representatives from 195 countries, along with the extension of the environmental tax credits is acting as a forerunner for the renewable industry as a whole, playing a key role in the transition from fossil fuels to a carbon-free economy.

The U.S. major residential solar behemoth SolarCity Corp. SCTY soared 34.06% yesterday following the news. The other U.S. solar players that gained double digits are SunEdison SUNE , Sunrun Inc. RUN , Real Goods Solar, Inc. RGSE and SunPower Corp. SPWR , which added a respective 25.45%, 22.55%, 15.78% and 14.29%. First Solar FSLR , Solar3D Inc. SLTD , 8point3 Energy CAFD and TerraForm Power TERP climbed 9.68%, 9.25%, 6.75%, 6.54%, respectively.

Enphase Energy, Inc. ENPH , makers of inverters used for building solar energy systems, and Isreal's SolarEdge Technologies, Inc. SEDG rallied 38.59% and 17.10%, respectively.

Chinese solar companies also got a solid boost with shares of Trina Solar Ltd TSL , JinkoSolar Holding Co., Ltd. JKS , JA Solar Holdings Co., Ltd. JASO , ReneSola Ltd. SOL and Yingli Green Energy Holding Co. Ltd. YGE gaining 4.84%, 8.35%, 5.56%, 13.74% and 7.94%, respectively.

To Sum Up

It is evident that demand for renewables is strengthening at a rapid clip. Moreover, the gradual widening of the solar markets should bode well for all global players and instill confidence in the industry over the long term. The Zacks Industry Rank for Solar is #16 out of 257, putting the industry in the first one-third place among all industries.

Residential solar in the U.S. has been one of the success stories in the alt-energy space. As per the Solar Energy Industries Association ("SEIA"), the U.S. solar market remains on track for a record-breaking year, with 1,361 megawatt DC installed during the third quarter of 2015. This took the market to up to 4.1 gigawatt ("GW") DC through the first nine months of 2015.

The major uptake was mainly due to the booming residential PV market and continued realization of the utility sector's double-digit GW project pipeline. Residential PV installation grew 69% year over year in the third quarter.

Although U.S. home solar adoption has stepped up in recent years, major solar project constructions and commercial-scale rooftop arrays for industrial users have somewhat slowed down in 2015. This can be mainly attributed to uncertainty pertaining to the solar credit termination. Now, the latest renewal brings a fresh lease of life into solar adoption. Plus, "the extension is likely to add another 140,000 jobs or more," as per to SEIA.

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JA SOLAR HOLDGS (JASO): Free Stock Analysis Report

TRINA SOLAR LTD (TSL): Free Stock Analysis Report

FIRST SOLAR INC (FSLR): Free Stock Analysis Report

RENESOLA LT-ADR (SOL): Free Stock Analysis Report

JINKOSOLAR HLDG (JKS): Free Stock Analysis Report

SOLARCITY CORP (SCTY): Free Stock Analysis Report

SUNEDISON INC (SUNE): Free Stock Analysis Report

SUNPOWER CORP-A (SPWR): Free Stock Analysis Report

YINGLI GREEN EN (YGE): Free Stock Analysis Report

ENPHASE ENERGY (ENPH): Free Stock Analysis Report

SOLAR 3D INC (SLTD): Free Stock Analysis Report

8POINT3 ENERGY (CAFD): Free Stock Analysis Report

TERRAFORM POWER (TERP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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