Guggenheim Solar Index: Supply chain cost increases see underperforming solar stocks

In May, cost increases across the supply chain left solar stocks underperforming in the market, writes Jesse Pichel of ROTH Capital Partners. For the U.S., higher prices for shipping and steel have hit particularly hard.

Source: Roth Capital Partners

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From pv magazine 06/2021

Stock Index 6/21Up to May 25, the Invesco Solar ETF – an exchange-traded fund that tracks the MAC Global Solar Energy Index – underperformed relative to the S&P 500 and Dow Jones Industrial. The Invesco Solar ETF (TAN) decreased 6.4%, while the S&P 500 and DJIA increased 0.4% and 1.5%, respectively.

The five solar stocks in the U.S. market that predominantly recorded losses include Applied Materials (1.4%), Enphase Energy (1.2%), SolarEdge Technologies (-3.3%), Atlantica Sustainable Infrastructure (4.1%), and Generac Holdings (-4.1%). The most pressing challenge for the solar PV industry is without a doubt the cost increases throughout the supply chain, but none are highlighted more than the increase in commodities costs, in particular steel and freight costs.

U.S. steel prices are expected to remain high through the first two quarters of 2022. U.S. manufacturers do not appear in a rush to increase production. Factors that contribute to the price increases include the consolidation of U.S. steel mills and tariffs on steel imports. Steel imports have driven the rise in U.S. steel mill utilization (now reported at 85%), and with a decline in suppliers due to consolidation, producers are able to maintain their “stranglehold” on supply and sustain high prices until the first half of 2022. Overall, price increases and a higher cost of capital have added $0.05/W of incremental costs.

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Input costs

Solar tracker manufacturers such as Array (ARRY) and FTC Solar (FTCI) witnessed major hits to their stock prices (down ~50% and ~40% on May 12, respectively) during earnings season in the week of May 10. Again, this was directly attributed to cost inflation. For reference, U.S. utility-scale PV module pricing six months ago for the third quarter of 2020 was $0.25/W, compared to $0.28/W today. With mid-teen IRRs for utility-scale projects, these companies do not have much room to absorb this rapidly increasing cost inflation.

By Jesse Pichel

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