ITC extension talk boosts US solar shares


December 31, 2016 is a date etched into the calendars of every U.S. company with a vested interest in the domestic solar industry, for that is the date when the current Investment Tax Credit (ITC) is cut from 30% to just 10%. However, as Republicans and Democrats discuss in congress a potential extension of the ITC for a further five years, shares of many U.S. solar and clean energy firms jumped Tuesday.

The likelihood of any such deal being struck remains uncertain, but the immediate post-Paris Agreement atmosphere is one of hope for change, with Bloomberg reporting that two energy lobbyists with ears in Congress say that discussions are advanced towards issuing a five-year renewal of the solar and wind ITC in exchange for an end to the 40-year-old ban on U.S. oil experts. Votes are expected on the legislation on Thursday.

The uncertainty over a possible ITC extension has put the U.S. solar industry in a state of near-limbo for months, with some experts even suggesting that its removal would be a good thing for a sector that is being tech-driven towards cost competitiveness.

However, many solar shares have been kept low because of this uncertainty, and as talks progressed in Congress, shares in SunEdison rose 12.6% at the close in New York. Residential solar installer Sunrun also gained 4.3%, and SunPower’s shares reached $24.42, an increase of 4.9%. Vivint Solar, which operates in the growing U.S. residential space, also saw its shares jump by 4.3%.

This optimism on the exchanges was tempered among solar analysts at Morgan Stanley, reported Reuters. Stephen Byrd of Morgan Stanley told the newswire that if the ITC is not extended then “we see a fairly significant shakeout among competitors where only the largest companies will be profitable in 2017.” Byrd added that no ITC extension would “shake out competitors”, but warned that margin numbers would come down.

According to Deutsche Bank analyst Vishal Shah, a favorable U.S. policy resolution could be a “game changer in a bull case scenario for the ITC”. If a long-term or permanent extension is approved – and Shah believes that a positive resolution is increasingly favorable – then the U.S. solar industry is set for a positive shot-in-the-arm, particularly residential installers such as SolarCity and Vivint Solar.

"First Solar and other utility installers could see significantly improved economics on contracts that have already been signed, with upside to future ability to bid competitive PPAs for new utility-scale installations," Shah wrote in a note.

SolarCity urges swift resolution

Leading residential solar installer SolarCity has today urged Congress to swiftly pass legislation for the extension of the ITC following the weeks-long bipartisan negotiations between Senate and House leaders.

SolarCity said that "consistent, long-term policies supporting solar energy" are critical to the growth of a lower-carbon economy.

"On behalf of over 15,000 employees here in the U.S. and nearly 300,000 customers, SolarCity applauds the bipartisan agreement that prioritizes the growth of solar in the U.S.," said SolarCity CEO Lyndon Rive. "Using clean energy is the most important step an individual can take to address climate change and protect future generations."

Rive added that, combined with the historic Paris Agreement, long-term certainty for the ITC "sends a strong signal to the marketplace that investment in clean energy is the right way to drive continued economic growth and job creation."

The solar industry first caught wind that Congress was mulling an extension of the ITC early in December when Credit Suisse analyst Patrick Jobin fed back reports from inside Congress that renewed momentum was building for a "near-term" extension of the ITC, even among Republicans.

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