U.S. solar shares rise on hopes for tax credit extension
By Sinead Carew
(Reuters) - Shares in solar companies including Sunrun Inc RUN.O and SunEdison Inc SUNE.N rose sharply on Tuesday as investors bet on an extension beyond 2016 of current investment tax credits.
The solar industry was also boosted Tuesday by a California Public Utilities Commission proposal to continue solar customer credits for electricity they contribute to the utility grid. (bit.ly/1P5tGGP)
Shares in SunEdison rose 12.6 percent to $5.05. Sunrun shares rose 4.3 percent to $9.49 after rising to $11.29.
Federal tax credits - which boost residential and commercial installations - are under negotiation as part of an end-of-year, must-pass bill to fund the government through September 2016. Votes are expected on the legislation on Thursday.
Investors are growing optimistic lawmakers would agree to an extension, said Stephen Byrd, solar analyst at Morgan Stanley. Kevin Walenta, portfolio manager of the Fidelity Select Environment and Alternative Energy Portfolio also cited reports of potential consensus in Washington as a boost to solar shares.
"If the ITC (investment tax credit) is not extended, we see a fairly significant shakeout among competitors where only the largest companies will be profitable in 2017," said Byrd. "In some ways it's good in that it would shake out competitors, but margin numbers would come down."
Byrd sees companies such as Sunrun and SolarCity Corp (SCTY.O: Quote) continuing to grow profitably in 2017 even if the tax credit is reduced, while smaller private companies could have a tougher time. Byrd is restricted from commenting directly on SunEdison due to its pending Vivint Solar Inc VSLR.N deal.
"If you don't get the tax credit (extension) that might push out the investment until costs come down. You might see less near term spending," said Fidelity's Walenta. Continued...