Solar exchange traded funds are luminous this year, extending their rally as investors round out 2017 on rising demand out of China and competitive low costs that are now comparable with traditional energy sources.
The Guggenheim Solar ETF (NYSEArca: TAN), the largest ETF dedicated to solar stocks, jumped 52.1% year-to-date.
Three bullish factors have contributed to this year’s run up, rising demand out of the emerging markets; solar costs have fallen to the point where it competes with natural gas, coal and nuclear; and ongoing low valuation levels compared to the pricier broader markets after the ongoing rally, according to MAC Solar Index, the tracking index for TAN.
Specifically, investors witnessed a surge in Chinese solar installs in 2017 and broadening solar strength coming from India, Latin America, the Middle East, and Southeast Asia. There is also stronger demand for solar power due to the increasingly competitive price of solar compared to alternatives as countries try to meet their carbon-reduction targets under the Paris COP21 global climate agreement. Additionally, the ongoing low valuation levels indicate solar stocks are conservatively priced even after the recent rally.
“Solar stocks have rallied sharply since May on signs of improved solar industry fundamentals and reduced concerns about Trump administration policies. The oversupply of panels that plagued the market in late 2016 has eased and company profit fundamentals are improving. In addition, the market was very encouraged to see a surge of about +45% in Chinese solar demand installs in 2017,” according to MAC Solar Index.
However, MAC Solar Index warned of some bearish factors that could hinder the solar sector’s rally, including availability of tax equity financing for the U.S. solar industry under the new tax plan, potential for a U.S. import tariffs on solar cells and panels due to Suniva’s Section 201 trade complaint, downward pressure on solar pricing from over production and other solar trade disputes that triggered tariffs.
While some may have been worried about President Donald Trump’s abrupt exit from the U.N. climate treaty framework and the administrations intent to rescind the EPA’s legal obligation to regulate CO2 emissions, the solar market has more or less absorbed the negatives from the Trump administration earlier this year.
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