Stock Analysis & Ideas

California’s New Home Solar Subsidy Plan: Boon or Bane for Solar Companies?

Story Highlights

Solar companies surged yesterday on the disclosure of the revised NEM plans. California is the largest market for residential solar solutions, and companies are concerned that some elements in the new plan may discourage further adoption of solar power.

California’s Public Utilities Commission (CPUC) proposed a revised plan for home rooftop solar subsidy, yesterday. The plan called Net Energy Metering (NEM) is designed to incentivize homeowners to use solar power and also sell back energy to the grid. In effect, it significantly reduces consumers’ monthly payments toward energy bills and also eases the pressure on the national grid.

The revised plan discarded the monthly grid connection fee that was proposed earlier and objected to by solar companies. However, it reduced the payments homeowners would receive for selling the excess power to the grid in a layered manner by up to 75%.

Further, the revised plan also pushes the adoption of solar-plus-storage power options. This proposal is disliked by solar industry veterans as they believe it will reduce installations of solar rooftops in California, which accounts for nearly 45% of the nation’s installed capacity.

Meanwhile, the CPUC has revised the NEM tariff, stating that the current plan “negatively impacts non-participating ratepayers; disproportionately harms low-income ratepayers; and is not cost-effective.”

There are both pros and cons to the revised NEM plan. The voting on the bill is expected on December 15, until then the proposal remains ineffective. Some companies, like Sunrun (NASDAQ: RUN) rallied massively at the news of the revised proposal yesterday. Let’s take a look at a few solar companies that showed massive movement on the disclosure of the bill and those that stand to benefit from it.

Sunnova Energy International (NYSE:NOVA)

Sunnova Energy provides both solar and energy storage devices and could be a major beneficiary of the new plan. NOVA stock jumped 19.7% yesterday, while the stock has gained 73.8% in the past six months.

Unhappy with the proposal, Sunnova CEO John Berger said, “Solar-only is something you want to encourage just to balance out the system…  We’re stepping in the right direction, but we’ve got a little ways to walk.”

Is Sunnova Energy a Good Stock to Buy?

With ten Buys and two Hold ratings, NOVA stock has a Strong Buy consensus rating. On TipRanks, the average Sunnova Energy price target of $35.36 implies 53.5% upside potential to current levels.

SunPower Corp. (NASDAQ:SPWR)

SunPower Corp. manufactures and sells solar panels and solar technologies both in North America and abroad. SPWR stock surged 19.6% yesterday, while it has gained 66.9% in the past six months.

Is SunPower a Good Stock to Buy?

On TipRanks, SPWR stock has a Hold consensus rating. This is based on three Buys, five Holds, and three Sell ratings. the average SunPower Corp. price forecast of $22.44 implies 2% downside potential to current levels.

SolarEdge Technologies (NASDAQ: SEDG)

SolarEdge engages in the operation of inverter solutions for the harvesting and management of photovoltaic solar power. The company offers not just residential solutions but also commercial solutions and grid services, and also stands to benefit hugely from the Inflation Reduction Act (IRA). SEDG stock gained 13.8% yesterday after having gained 31% in the past six months.

Is SolarEdge a Good Stock to Buy?

On TipRanks, SEDG stock has a Moderate Buy consensus rating based on nine Buys and four Holds. The average SolarEdge stock prediction of $327.67 implies 15.5% upside potential from current levels.

Ending Thoughts

Solar companies surged on the news of the revised NEM plan. However, the emphasis placed on storage energy solutions may hurt solar-only rooftop players. Also, the lower payments proposed for selling back the surplus energy to the grid could demotivate consumers. Only time will tell how and when the proposed rules, if passed, will impact the industry. For now, analysts remain bullish about the industry’s long-term potential.

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