Clean Energy Solar Stocks Sunrun, SunPower Scorch On Good News

Key takeaways

• Clean energy got a boost Thursday after Sen. Joe Manchin and Senate Majority Leader Chuck Schumer reached a deal on climate spending
• The renamed “Inflation Reduction Act of 2022” directs a record $370 billion to climate and clean energy spending
• RUN stock, SunPower stock and Enphase Energy all jumped on Thursday’s good news
• Many solar stocks also received a boost after several companies reported scorching hot Q2 earnings on Wednesday

Solar stocks surged Thursday after Sen. Joe Manchin and Senate Majority Leader Chuck Schumer announced they’d reached a deal.

If it passes, the Inflation Reduction Act of 2022 will be the most ambitious climate spending package in U.S. history. The bill includes nearly $370 billion for clean energy, including new technologies, jobs and upgrading to a cleaner grid.

Green energy, including EV and solar, rallied Thursday on the news. SunPower stock, RUN stock and Enphase Energy were among the day’s big winners. EV stocks like Tesla rose more modestly.

The Inflation Reduction Act

Earlier this month, reports emerged that Sen. Joe Manchin refused to support the economic package that contained $370 billion in climate spending. Given the current 50-50 party-line split in the Senate, Democrats needed the West Virginia senator’s vote to pass the package.

In a surprise reversal, Manchin announced Wednesday night that he’d reached an agreement with his party. Said the senator in a statement:

“Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs and ensure our country invests in the energy security and climate change solutions we need to remain a global superpower through innovation rather than elimination.”

The breakthrough came after the Senate passed the Chips and Science Act. This bill earmarks some $54 billion for chipmakers and aims to expand U.S. production.

What’s in the bill?

The bill – which heads to the Senate next week – is $1 trillion lighter than the original Build Back Better plan. It also boasts a new name: the Inflation Reduction Act.

Still, it contains several hefty expenditures to ease some inflationary and prescription drug price pressures and build green infrastructure.

Among other provisions, the bill includes a 10-year extension of the Investment Tax Credit for clean energy. It also aims to reduce carbon emissions 40% from 2005 levels by 2030, as well as methane and port pollution.

The package also includes:

• Incentives for domestic manufacturing
• Provisions for electric vehicles (EVs), nuclear power and hydrogen power
• A minimum 15% corporate tax rate on companies with profits over $1 billion
• $80 billion to boost IRS capabilities
• A provision that allows Medicare to negotiate prescription drug prices

The Inflation Reduction Act has yet to pass the Senate or be signed by President Biden. But for now, investors are betting that the compromise will hold. Yielding to a key Manchin demand, the bill also devotes $300 billion to deficit reduction to fulfill a key Manchin demand.

Green energy gets a win

If the bill passes, it will devote nearly $370 billion to crucial climate initiatives, including:

• $3 billion for the U.S. Post Office to buy zero-emission vehicles
• $9 billion in consumer home energy rebate programs
• $9 billion for federal procurement of American-made clean tech
• $30 billion in tax credits to accelerate solar panel, wind turbine and battery production
• $30 billion in target grants and loans to accelerate utility transitions to clean electricity
• $60 billion for clean onshore energy production

Solar stocks rally after Manchin reversal

For the past few months, clean energy alternatives, including solar, have grown more popular around the world as the war in Ukraine has tightened global energy supplies. But the solar industry faced several hurdles in ramping up production, including policy uncertainty, supply chain bottlenecks and rising raw materials prices.

And then, green energy and solar stocks took a hit in mid-July when reports leaked that Manchin wouldn’t support the climate package. At the time, Sunrun stock dropped 6.4% in a day, while SunPower stock slipped 3.4%. First Solar took the brunt of the damage with an 8.1% daily loss as Sunnova Energy fell 5%.

But Wednesday’s announcement saw those same stocks rally hard in Thursday trading.

First Solar soared nearly 15.3% Thursday, before rising slightly after reporting Q2 results after market close.

Enphase Energy jumped 7.6% after surging almost 18% Wednesday on record Q2 revenue. The California-based solar company’s results were boosted by increased demand out of Europe in the quarter.

Meanwhile, RUN stock (Sunrun) popped 19% in early trading before skyrocketing almost 30% by close. And SunPower stock edged up 12% early Thursday, finally closing up nearly 18.2% by the evening bell.

All of these stocks likely received a small boost from another solar powerhouse, Sunnova Energy, after the residential solar company topped Q2 revenue expectations the night before.

Not all is sunny for RUN stock

While Sunrun enjoyed a substantial rally on Thursday, the company could face some complications. The same day, Muddy Waters Research dropped a short report that could spell trouble if the allegations hold true.

Among other factoids, the report targets Sunrun’s fundamentals, claiming that the firm’s asset and subscriber values are overstated. If true, Sunrun’s “real” net earnings could be lower than reported.

Muddy Waters also takes umbrage with Sunrun’s tax credit claims, suggesting that the company essentially claims a tax credit on its tax credits. Muddy Waters estimates the “damage” at $948 million.

A muted boost for EV

EV stocks also saw a small boost on Thursday, as the bill outlines a series of incentives for both manufacturers and buyers.

Included among these are a $4,000 tax credit for buying a used EV and $7,500 for buying new EVs. Unlike past credits, these would only be available to lower- and middle-income consumers, and luxury EVs are excluded from the provision.

On the manufacturing side, the Inflation Reduction Act offers $30 billion in production credits and $10 billion in investment tax credits to build EVs and EV batteries. (Among other green energy necessities.)

The bill also provides $2 billion in grants to overhaul existing manufacturing plants to make EVs and up to $20 billion in loans to construct new factories. Disadvantaged communities will receive a further $1 billion in grants to buy electric public and school transport busses as well as electric garbage trucks.

The EV stock reaction was slightly more muted on the news (possibly owing to a phase-out in credit eligibility based on battery mineral source requirements).

While Rivian climbed 5.7%, Tesla saw its stock bump a mere 2.2%. Ford popped 6.1%, partly owing to its stellar Q2 results reported late Wednesday. GM saw a more modest stock jump of 3.1%.

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If it passes, the Inflation Reduction Act marks the single biggest climate investment in U.S. history. It has the potential to enact substantial change, including a 40% reduction in carbon emissions by 2030. That’s big news.

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