3 Reasons Solar Stocks Could Stumble
1. The Status Quo
1. The Status Quo Unlike other emerging industries, solar isn’t creating new demand—it’s taking it from utilities. While utilities like NextEra Energy (NYSE: NEE) have embraced a collaborative effort with SolarCity Corporation to triple Hawaii’s solar power to around 45 MW, other electric companies aren’t so keen to embrace the solar revolution.
2. Disappearing Subsidies
2. Disappearing Subsidies At the end of 2016, the U.S. solar investment tax credit will drop from 30% to 10%. The drop will hit every solar company equally, but the entire sector could lose its comparative advantage over fossil fuels and other alternative energies.
2. Disappearing Subsidies In the chart below, First Solar’s advantage might disappear alongside its subsidy. Any bump in solar costs could push solar costs above coal, nuclear, and natural gas. Current cheapest solar
3. International Trade and Expansion
3. International Trade and Expansion China is the solar manufacturing center of the world. While companies like SolarCity are shifting production to in-house facilities like its New York Gigafactory, they will have to deal with continued China trade issues for at least the next few years. That means managing trade tariffs, supply issues, and less ability to push back on price increases. SolarCity’s planned manufacturing facility
3. International Trade and Expansion With increased competition at home, solar companies are also looking elsewhere for expansion. First Solar is currently in six continents, while SolarCity is set to make its first foreign foray into Mexico.
3. International Trade and Expansion But foreign expansion can mean unpredictable regulation, currency fluctuation, new supply chains, and an entirely different economic market. That can seem hard for pure play U.S. solar stock investors to swallow.
3. International Trade and Expansion But despite the risk, the relatively low-hanging fruit and inherent diversification in heading international is important for solar investors to consider today, before trouble hits the U.S. horizon. With upcoming regulatory worries, now may be the time to consider the global diversity of your solar stocks.
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