The solar energy industry has been blazing hot for a while now on growing awareness about climate change, President Biden’s positive stance on the clean energy industry, and declining installation costs. However, the solar space is now under some pressure due to supply chain issues amid record demand. As such, SolarEdge Technologies (NASDAQ:SEDG), Sunrun (NASDAQ:RUN), Sunnova Energy (NOVA) and ReneSola (SOL) have recently experienced a sell-off and their share prices are expected to continue declining. Hence, we think it is wise to avoid these stocks for now. Read on.Growing concerns about climate change are forcing global leaders to focus more on transitioning their countries to sustainable-energy-based economies. On the domestic front, the Biden administration has proposed to spend $2 trillion-plus on infrastructure development, including clean energy. Massachusetts lawmakers recently proposed a bill that would require rooftop solar panels on new residential and commercial buildings, and the federal government plans to add more than 500 million solar panels to America’s energy infrastructure over the next five years.
Hence, with the rising focus on clean energy, the industry is well-positioned for multi-decade growth. To put things in perspective, solar energy contributed nearly 4% of total renewable generation in 2016. This is expected to increase to 17% by 2030. However, the industry has been seeing a sell-off lately because companies are facing supply chain constraints and higher shipping costs amid record demand for solar panel installations. The mounting pessimism over the industry’s near-term prospects is evident in the Invesco Solar ETF’s (TAN) 21.7% loss over the past three months compared to SPDR S&P 500 ETF Trust’s (SPY) 10.2% gains.
Furthermore, investors expect the Fed to increase interest rates sooner than expected, thanks to rising inflationary pressures. This is a huge negative for the solar industry because solar projects require huge upfront costs, which are typically financed with debt. So, acknowledging these near-term headwinds, we believe shares of SolarEdge Technologies, Inc. (SEDG), Sunrun Inc . (RUN), Sunnova Energy International Inc . (NYSE:NOVA) and ReneSola Ltd. (SOL) could remain under pressure for some time, and so it’s wise to avoid these stocks for now.