The green energy sector has drawn much attention throughout 2021 as both elected officials and business professionals work to confront the threats posed by climate change. The recent passing of President Joe Biden’s Build Back Better package gave Wall Street reason to believe that sectors such as construction and infrastructure might see gains in 2022. However, a new report has recently pointed toward a future for certain clean energy players that is less bright, especially for the solar energy sector. The supply chain crisis is creating bigger problems for the companies producing new energy solutions than some realized. As a result, solar stocks have taken a beating today.
What’s Happening With Solar Stocks
Released this morning, the report in question was compiled by the Solar Energy Industries Association and Wood Mackenzie. As CNBC reports, it forecasts that the U.S. solar energy industry will experience a growth rate less than 25% of what had been previously forecasted. This is largely due to the supply chain crisis and increasing costs of raw materials. Solar stocks were quick to fall upon the release of this news.
Unsurprisingly, it hasn’t been a good day for the companies of the solar energy sector. Enphase Energy (NASDAQ:ENPH) is down 5.25% at market close, but for its competitors, things have been worse. SunPower (NASDAQ:SPWR) has seen shares fall by almost 10.78% as of this writing, while Sunrun’s (NASDAQ:RUN) is down 15.7% at market close. All three solar stocks had seen some slight downticks in the week leading up to this. However, nothing has been as severe as the drop-off all three have seen today.
ENPH and SPWR were recently named to a list of energy stocks to buy for the coming winter. The way it looks from here, that might be a strategy to rethink.
Why It Matters
There’s no getting around the fact that this news casts some dark clouds over an industry that looked poised for growth in 2022. At the same time, it’s hardly surprising. As the report noted, costs of materials necessary for all types of manufacturing have risen sharply throughout the year. This makes it difficult for the companies doing the building to operate and meet deadlines. Additionally, we’ve also seen trade uncertainty rise throughout 2021 as the supply chain crisis has strained areas such as international trade. We saw the solar energy sector grapple with the constraints imposed by the 2018 trade war caused when former president Donald Trump imposed tariffs on some of America’s trading partners. The sector was vulnerable then, just like it is now.
None of this is to say that the solar energy sector doesn’t have significant potential. It absolutely does. And the importance of its technology should not be understated, particularly as the area of energy storage emerges as a field worth watching for investors.
“Want to still have a planet to call home in 50 years?” asks InvestorPlace’s Luke Lango in a recent analysis of the utility of energy storage. “We need solar, wind and hydrogen. It’s that simple.”
What It Means
He’s certainly right that alternative energy solutions are becoming increasingly necessary. Naturally, the demand for the services of the companies producing them will only grow. That said, it’s clear that our government will need to find solutions to deal with the supply chain crisis.
It’s worth noting that it isn’t just solar stocks that are feeling the strain caused by today’s news. Some of their alternative energy peers such as NextEra Energy (NYSE:NEE) have also been falling today. At a time when we need alternative energy solutions most, external factors are threatening innovation. Until there are solutions, the future won’t be bright for solar stocks.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
