Solar panel makers and sector-related exchange traded funds could glimmer this year as government-backed installations are expected to expand in the U.S.
On Friday, the Guggenheim Solar ETF (NYSEArca: TAN) and the Market Vectors Solar Energy ETF (NYSEArca: KWT), which track global solar photovoltaic panel producers, rose 2.5% and 1.1%, respectively. The sector has experienced a rough start to the year, along with the rest of the market, with TAN falling 11.9% and KWT dipping 8.7% year-to-date.
The solar sector, though, is expected to see brighter days ahead as implications of a key government subsidy extension begin to settle in. U.S. installations are expected to grow 10% in 2016, reports Allison Gatlin for Investor’s Business Daily.
The renewable energy industry is enjoying further government support after Congress extended the investment tax credit on solar installations through 2023 in exchange for lifting a 40-year ban on U.S. oil exports.
The investment tax credit was originally set to expire on December 31, 2016. Consequently, investors had anticipated a precipitous decline in demand for solar energy, with installations falling in 2017 due to the expiration.
The recent credit extension also highlights the political risks associated with solar and renewable energy technologies. Over the past year, TAN declined 15.6% and KWT fell 13.2% as many expected the tax credits to expire in the coming year.
Under the current tax credit extension, commercial projects starting by 2019 will receive the current 30% subsidy. In 2020 and 2021, projects will receive 26% and 22% subsidies. Afterwards, projects will receive 10% subsidies through 2023. The residential credit also follows a similar trajectory, except it expires at the end of 2021.