Why Solar Stocks Are Falling With Fall In Oil Price?


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The unexpected announcement of maintaining oil production at current levels by OPEC has come as nightmare for the oil companies and solar-based companies. Following OPEC’s decision, the shares of some of the solar players like SolarCity (NASDAQ:SCTY); SunPower Corporation (NASDAQ:SPWR) and Canadian Solar Inc. (NASDAQ:CSIQ) were down by 7-8%.

Emotional And Not Fundamental

According to Axiom Capital Management analyst, Gordon Johnson, the drop in oil prices has pushed down the demand for renewable energy companies, leading to decline in their share prices. However, some find the action and reaction in between oil and solar stocks as more emotional than fundamental. Oil has less role playing in generation of electricity, which displaces it as a competitor to solar energy. Only 1% of the U.S. electrical needs are met by oil while its utilization as power on a global basis is as low as 5%. As Josh Baribeau of Canaccord Genuity Inc. puts up, “We have never liked the psychological correlation between solar stocks and oil, but it exists to some degree.”

Will Not Impact Solar Space

The fall in oil prices has led investors to the illusion that they will have more cost-efficient energy supply produced by oil than solar stocks. Otherwise, in the true sense, there is no point of interlinking the two. Since Crude oil has tanked to five year lows of $68 a barrel, its price has decreased in relation to solar energy. But, it does not make any change to energy consumers, at least to those who are not riding on solar-energy driven cars. Meanwhile, NRG Energy Inc. CEO, David Crane too said that the price volatility in oil has nothing to do with their solar business. It is to be noted that NRG Energy has acquired three solar-based companies this year.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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