New York (CNN Business)After years of being shunned, solar stocks are suddenly all the rage on Wall Street.
Sunrun, America’s largest rooftop solar company, has spiked more than 300% so far this year. And the Invesco Solar ETF (TAN) has more than doubled in 2020.
It’s part of a rally fueled in part by hopes of a blue wave that leads to more federal support for renewables, as Joe Biden has called for wiping out carbon emissions from the power grid by 2035.
Meanwhile investors have been dumping fossil fuel stocks, particularly Big Oil companies, amid the rise of environmental, social and corporate governance (ESG) screens and socially conscious investing. ExxonMobil (XOM) is no longer America’s largest energy company by market value. It’s been dethroned by solar and wind company NextEra Energy (NEE).
“It’s just a sign that renewables are going to be a faster-growing, more affordable solution. There’s just no denying that anymore,” Sunrun co-founder and CEO Lynn Jurich told CNN Business.
Jurich doubled down on that bet with a $3.2 billion takeover of rival Vivint in July. The deal, which closed last month, combined the nation’s two largest rooftop solar companies.
The Vivint takeover meant that Jurich was juggling a billion-dollar acquisition and her normal duties as a public company CEO — while working from home during the pandemic with her two young children.
“We’re all struggling with work-life balance. The children thing is the hardest part,” said Jurich, who is 41 years old. “I’ve been able to spend more time with my children because I work from home. That has good days and bad days, like everyone else.”
Betting on Biden win
Investors rushed to buy Sunrun shares on hopes that the acquisition, along with more favorable policies out of Washington, will boost the company’s prospects.
“The Biden platform is very favorable to renewable energy, specifically residential solar,” said Sophie Karp, senior analyst at KeyCorp.
Karp said there’s no doubt the solar rally lifting Sunrun (RUN) and its rivals is due in part to an expectation that Democrats will sweep into power.
The Invesco WilderHill Clean Energy ETF (PBW) (PBW), which owns shares in Sunrun, SunPower (SPWR), Tesla (TSLA) and other renewable companies, has nearly doubled this year. By contrast, the Energy Select Sector SPDR Fund (XLE) dominated by the likes of Exxon and Chevron (CVX) is down by 50%.
“Biden is priced in,” she said. “I definitely think we’re going to see a letdown in renewable names if he doesn’t win.”
Jurich, the Sunrun boss, downplayed the impact of politics on the industry’s future.
“In terms of the election, the interesting thing is that solar has huge bipartisan support,” she said. “That encourages us no matter which direction the election goes. Either outcome is supportive of the business.”
Election could determine fate of tax credit
Joe Biden has proposed nearly $2 trillion of federal investment to address the climate crisis and create union jobs that can’t be outsourced.
A Biden climate task force called for installing eight million solar roofs in part by cutting red tape to accelerate faster permitting. That’s an ambitious target considering the United States currently only has about 2.2 million residential solar installations, according to KeyCorp.
Crucially, Biden’s tax plan also calls for Congress to expand renewable energy tax credits and restore the federal Energy Investment Tax Credit (ITC). The tax credit, which is available to homeowners who buy or finance rooftop solar installations, will be phased out by 2022.
“Extending the tax credits under Democrats, something people increasingly priced in this year, could be worth a lot of money,” said Michael Weinstein, an analyst at Credit Suisse. “It would accelerate growth and make solar even more competitive.”
Weinstein emphasized, however, that renewable energy — and solar in particular — no longer requires help from Uncle Sam to compete with fossil fuels. That’s because the costs to build out renewable energy have plunged.
“Solar is ready to stand on its own two feet. It doesn’t need tax credits or federal support,” he said.
Jurich said that Sunrun would “obviously encourage” the extension of the tax credits and noted that it has bipartisan support, especially since it was enacted in 2006 under former President George W. Bush. The solar tax credit began a step-down period this year that lowers the amount that individuals and companies can claim. By 2022, it will go to zero for residential solar — unless Washington acts.
“It’s a huge job creator. And it’s one of the only federal policies helping us tackle decarbonizing the electric system,” Jurich said. “If it doesn’t get extended, we would proceed along. The market’s not going anywhere.”
Solar on the rise as fossil fuel doubts grow
Regardless of the election’s outcome, analysts expect investor interest in renewable energy to remain elevated because of the influence of the ESG movement.
Weinstein, the Credit Suisse analyst, said he’s been fielding requests from money managers in the oil-and-gas space who are under pressure to diversify their portfolios to hedge against the long-term risk that fossil fuels will be replaced by renewables.
That trend helps explain why price-to-earnings valuations for Sunrun and other renewable energy stocks have climbed this year, even as fossil fuel companies are having the opposite experience.
“It’s brought more money into the ecosystem,” said Weinstein. “And more money sometimes means higher prices.”
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