In the tumultuous landscape of solar energy stocks in 2023, higher interest rates have dealt a blow, resulting in decreased demand for solar projects from retail consumers. The sector, however, looks poised for a potential resurgence in 2024 as interest rates are anticipated to decrease, and green initiatives gain momentum.
Pavel Molchanov, Managing Director at Raymond James, sheds light on the solar energy space’s outlook during an interview with Yahoo Finance. Despite the challenging market conditions, Molchanov emphasizes that 2023 has seen a global record in solar installations, including a peak in the United States. He suggests that the primary setback lies not in the volume of installations but rather in certain cases presenting a margin challenge. Moreover, the stock performance, distinct from the fundamentals, is also influenced by valuation concerns.
“It’s not a volume problem. It’s, in some cases, more of a margin problem. And of course, for the stocks, as distinct from the fundamentals, it’s also a question of valuation, right? So stocks can be down even if the fundamental business trends are actually up,” states Molchanov.
Despite the challenges faced by solar companies, Molchanov points out that the current year has witnessed a remarkable installation of 300 gigawatts of solar globally, marking an all-time high. In the United States alone, 30 gigawatts have been installed, also reaching an unprecedented peak.
Host Julie Hyman acknowledges the difficulties faced by the solar market in 2023, exemplified by the struggles of the Invesco Solar ETF (ticker: TAN). Higher interest rates and a cooling demand have contributed to a challenging environment. Molchanov acknowledges the industry’s challenges, especially in residential projects heavily reliant on financing.
In response to questions regarding accounting practices within the industry, Molchanov notes the historical context of tax credits in the solar sector, with Section 45X being a recent addition. While some accounting restatements have occurred, he emphasizes that, in the broader perspective, these are mostly small, dynamic, and fast-moving companies, and accounting challenges, while inconvenient, may not be catastrophic.
The solar industry, grappling with short-term challenges, remains resilient, supported by an optimistic outlook for increased installations in the coming year. As interest rates are expected to ease and green initiatives gather momentum, solar stocks may find a more favorable environment in 2024.