California Solar Panel Mandate Ignites Surge in Solar Stocks

U.S. solar stocks experienced a significant rally this week after the California Energy Commission announced a mandate that all new single-family homes and low-rise apartments must be equipped with solar panels starting in 2020. Pending final approval by the state's Building Commission, this regulation is projected to increase home construction costs by approximately $10,000 but promises homeowners energy savings of up to $20,000 over three decades.

The Guggenheim Solar ETF (TAN) surged to a three-month peak and is challenging its January 2018 three-year high, reflecting strong momentum across the solar sector. This positive trend benefits manufacturers impacted by tariffs introduced in February, though domestic producers are poised to compete aggressively against imported panel suppliers from China and other major markets. (See also: The Economics of Solar Power.)

First Solar, Inc. (FSLR), the largest U.S.-based solar manufacturer by market capitalization at $7 billion, has experienced notable volatility over the past decade. After breaking long-term support levels in 2011 and bottoming near $11.43 in 2012, the stock rebounded to mid-$70s by 2014 but faced resistance. It declined to four-year lows in 2016 before rallying to a six-year high of $81.72 in April 2018. Following a brief pullback, the recent surge triggered by California’s mandate pushes shares above $82, suggesting a potential breakout toward triple-digit valuations. (For comprehensive insights, see: The History of First Solar.)

France’s Total S.A. (TOT) holds a controlling interest in SunPower Corporation (SPWR), which has a market cap of $1.2 billion. SunPower’s stock reached a six-year high in 2014 but then entered a downtrend, bottoming near $6.00 in early 2017. After a failed rally attempt in mid-2017, the stock rebounded in early 2018 and is currently approaching its 2017 highs. While breaking a descending trendline indicates strengthening momentum, investors should be cautious due to an unfilled price gap from August 2016 between $11 and $14 that may hinder near-term gains. (See also: SunPower Breaks Out After Seeking Exemption.)

Vivint Solar, Inc. (VSLR), operating in 21 states including California and valued at $519 million, has faced challenges since its 2014 IPO. After hitting an all-time low of $2.30 in 2016, the stock formed a base and broke out in June 2017. Despite a pause at a 16-month high just above $6.00, a recent inverse head and shoulders pattern and surpassing the 50% retracement level signal renewed upward momentum, potentially reaching last year’s highs in the coming quarters.

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The Bottom Line

Following California's solar panel mandate for new residential construction starting in 2020, U.S.-based solar stocks are gaining traction. This development alleviates concerns stemming from earlier tariffs on foreign solar manufacturers and may mark the beginning of a sustained upward trend in the sector. (For further reading, see: Top 3 Solar Stocks as of May 2018.)

Disclosure: The author held no positions in the mentioned securities at the time of publication.

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