How Government Subsidies Impact Enphase Energy Stock

ENPH stock - How Government Subsidies Impact Enphase Energy Stock

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Enphase Energy (NASDAQ:ENPH) is a global solar energy technology company. Enphase focuses on providing intelligent and flexible solar power generation, storage and communication systems. A key driver of Enphase’s value proposition is that it puts all these different solar technologies onto one platform rather than making solar installers buy from suppliers. The company rose to prominence thanks to its proprietary microinverter technology. It has sold more than 42 million microinverters to date and is now up to nearly 2 million residential and commercial solar systems in use. ENPH stock has been tremendously successful as the business has grown. Shares are up more than tenfold since 2019.

However, some clouds have appeared on the horizon for Enphase and ENPH stock. Specifically, there are some problems around solar subsidies and trade issues. The industry, it’s important to note, remains highly sensitive to government policy to remain cost competitive against other types of power generation. It seems the American government is causing some issues on this front.

Two weeks ago, major utility solar company NextEra Energy (NYSE:NEE) announced a surprising operating loss. In its earnings discussion, NextEra Chief Executive Officer (CEO) John Ketchum slammed President Biden’s Administration for launching a probe which could slap massive retroactive tariffs on imported solar panels. Ketchum asked how the government could “possibly pull the rug out from under the industry” during such a sensitive time. It’s no secret that energy prices are exploding amid the geopolitical tensions overseas, so it’s hardly ideal for the solar industry to face a shortfall of equipment, as well.

The federal government’s intervention in the solar panel market is the latest in a string of setbacks. Wind and solar stocks surged in early 2021 on hopes that the Biden Administration would heavily incentivize construction of new renewable energy projects as part of its infrastructure package. However, the infrastructure bill ended up being far smaller than originally budgeted and the planned second phase of it hasn’t even passed. Needless to say, this has thrown a bucket of cold water on the renewable energy sector and stocks, such as Enphase.

However, Enphase has reacted to these issues and instead turned to Europe. In an interview with Barron’s, CEO Badri Kothandaraman said that Enphase should be able to grow sales by 40% this quarter in Europe. The continent has been slammed by far higher energy prices in the wake of Russia’s invasion of Ukraine. With natural gas in short supply and several countries shutting down their nuclear reactors, power supplies are strained and prices are skyrocketing. In this environment, Enphase should find both strong consumer demand for products and an improved outlook for government investments and subsidies in the sector. The supply chain issues and lack of investment in the U.S. are a headwind for ENPH stock. However, Enphase’s management has taken a proactive approach to stay ahead of these problems.

On the date of publication, Ian Bezek 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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


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