Solar stock’s breakout 2021 disrupted by supply chain issues

After a breakout 2020 for the solar industry, 2021 has been filled with supply chain and political issues. But solar stocks are finally having their moment — with the Invesco Solar ETF up 17% in the past month.

Not always sunny in the solar industry

2021 was supposed to be another breakout year for solar. For the first time after Biden’s nomination, three of the largest economies (US, Europe and China) supported an energy transition at the same time. And now, solar is cheaper than fossil fuels in most of the world.

But the industry ran into supply issues, despite massive demand:

• Polysilicon, a key ingredient in solar panels which are mostly refined in Chinese factories, is in short supply — with prices of the material quadrupling.
• Half the world’s supply is made in Xinjiang, a western region in China facing allegations of forced labor and rights abuse on ethnic Uyghur Muslims.

Biden blocked imports from one of the major manufacturers of a raw material used to make polysilicon — worsening the supply shortage. Then you have inflation and high shipping costs driving up prices.

Good problem to have: Too much demand

One part of the industry is still shining: inverters — an important component that converts energy acquired from solar panels into usable energy. And at the front of the industry is Enphase Energy.

Enphase doesn’t manufacture the actual solar panels but instead, is one of the leading providers of microinverters and even entered the energy storage business in 2019.

After being on the brink of bankruptcy in 2016, Enphase is back stronger than ever with its Tuesday earnings report — sending its stock up 25%.

• $352M in sales — double from the same quarter last year and well ahead of estimates.
• Raised its fourth-quarter sales forecast to $390M-$410M — higher than the expected $374M.

So how did Enphase report these strong earnings despite the costlier shipping and problematic supply chain? With a strong enough demand that surpassed supply, and price increases to offset higher costs.

Investors: Sunnier days

The solar industry is caught between external issues, which impacted most industries but the long-term outlook remains strong.

• Higher energy prices are increasing demand for clean energy.
• New polysilicon factories and the eventual easing of supply chains are expected to bring costs down by 2023.

In 2020, solar provided just 3.3% of global electricity, but there are good reasons to believe solar adoption will only increase.