The most significant term in energy production and consumption today is Net Zero. That’s the goal that aims to achieve zero carbon emissions globally by 2050, to avoid a looming global climate crisis. Solar power is one of the most important instruments being used to reach that goal. But, even as adoption of solar technologies at nearly all levels continues to press toward that net zero aim, the fortunes of solar stocks and companies continue to be mixed.

Uncertainty over Biden administration policy toward solar components imported to the U.S. out of Southeast Asian countries, has clouded outlooks for the producers, project developers and utilities driving U.S. solar industry supply and demand. The tension between financial markets shifting toward net zero energy accountability and an unclear immediate future for U.S. solar import policy has forced many investors to retreat into cash.

The result killed a two-month rally for solar stocks, dealing setbacks to leaders Enphase Energy (ENPH), SolarEdge (SEDG) and Canadian Solar (CSIQ) — a manufacturer incorporated in Ontario, but with the bulk of its operations in China. Even top U.S. producers led by First Solar (FSLR) and SunPower (SPWR) — potential beneficiaries of a rise in solar import tariffs — took hard hits after a February-March advance.

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California-based solar panel producer Auxin Solar requested in February that the Commerce Department investigate the origins of solar cells and modules assembled or completed in Cambodia, Malaysia, Thailand and Vietnam. Auxin contends that Chinese companies have simply near-shored the assembly of China-made solar components to these countries in order to avoid tariffs. The tariffs were imposed early in 2018, in response to state-backed solar producers in China flooding the U.S. market with cheap components.

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While many U.S. producers side with Auxin on the issue, the Solar Energy Industries Association asserts that broadened tariffs would hurt advancing U.S. solar interests.  On Wednesday, the SEIA cut its installation outlook for 2022-23 by 46%, “due to the Biden administration’s circumvention case against solar imports from Southeast Asia.”

A statement from SEIA President Abigail Ross Hopper said the industry would lose 100,000 jobs “in the blink of an eye.”

The Rocky Path To Net Zero

The SEIA forecasts must be taken in the context of the group’s vigorous lobbying campaign against an increase in tariffs. The group had also fought the tariffs imposed on China-made panels and components in 2018. Its current position also adds that broadened tariffs would amount to a Biden Administration surrender on its top-priority climate goals, which include the Paris Accord and a road map to net zero.

Net zero refers to a complex scheme of emissions reduction, elimination, capture and sequestration strategies enabling countries and companies to offset greenhouse gas emissions and reduce their net overall addition to global warming trends. The global to reduce net carbon emissions to zero is a target set by the Paris Climate Accord signed in 2015.

Achieving that goal, scientists explain, will determine whether subsequent generations will face a climate that is simply inhospitable, or downright hostile.

“Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk,” Larry Fink, chief executive of investment manager BlackRock (BLK), famously wrote in his 2020 letter to corporate chief executives. At this point in our understanding of global warming, Fink explained to an annual conference on financial policy and the environment at the MIT’s Sloan School in November, companies that don’t act on climate change imperatives are an investment risk, Fink said.

Climate Change A Defining Factor

The declaration that climate change would become a “defining factor” in how BlackRock assessed their investment targets triggered a rising number of corporations to announce plans to become carbon neutral.

BlackRock, which manages more than $10 trillion in assets, and a rising number of other large-scale institutional investors have begun carving billions in capital away from companies that are, in Fink’s words, “not moving fast enough.”

International scientific consensus contends that, to prevent the worst climate damages, global net human-caused emissions of carbon dioxide (CO2) need to fall by about 45% from 2010 levels by 2030, reaching net zero around 2050. Every sector of the global energy economy needs to eliminate carbon emissions completely by mid-century.

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To hit that target, businesses and governments plan to invest trillions of dollars into renewable energy sources. The many forms of renewable energy include biofuels, hydroelectric, wind and wood. The International Energy Agency says solar has the lowest capital expenditure and is the fastest energy source to install. Last year, solar photovoltaic capacity in the United States increased 45% over 2020.

Even so, it’s been a hot and cold environment for solar companies in the past few years. Solar, like almost all industries, was buffeted by Covid-19 challenges and supply-chain constraints. But production and demand soared in 2021, thanks to tax breaks, corporate demand for solar and falling costs. However, beginning in the fourth quarter of 2021 the good times hit a speed bump.

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Despite continued installation growth, this year was set to be a challenge for the solar industry due to ongoing supply-chain constraints and price increases. Solar industry veterans reported equipment procurement and pricing for projects currently under development are by far the most challenging they’ve ever experienced.

Elevated commodity prices, higher freight costs, and shipping delays that affected most segments of the economy had significant impacts on the solar industry, according to the SEIA. It was under these circumstances that Auxin waged its complaint against low-cost imports.

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On March 28, the U.S. Commerce Department launched its investigation into whether Chinese solar-equipment manufacturers are evading tariffs by sending components to other Asian nations for assembly. The U.S. solar sector relies on Malaysia, Vietnam, Thailand and Cambodia for about 80% of module supply.

The investigation reportedly could span a year and culminate in increased duties on the imports.

“Contrary to the Biden Administration’s goal of growing clean energy in the U.S., the Department of Commerce has decided to consider up to 50%-to-250% tariffs on the solar industry in the United States,” said the SEIA’s Ross Harper. “This misstep will have a devastating impact on the U.S. solar market at a time when solar prices are climbing, and project delays and cancellations are adding up.”

The disruption in solar is also coming from inflation.

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IBD’s Energy-Solar industry group tracks leading solar stocks. The group, which ranks a weak No. 164 on IBD’s list of 197 industry groups, has lost 24% since the start of the year. The 21-stock group fell 21% in 2021, following a 282% advance in 2021.

The leading stock in the group is Enphase Energy. It’s followed by China-based JinkoSolar (JKS), then Israel’s SolarEdge Technologies and China-based Daqo New Energy (DQ). U.S.-based solar stocks First Solar, SunPower and Sunrun (RUN) are also in the group.

Fremont, Calif.-based Enphase designs, develops and sells all-in-one energy solutions for homes, including battery storage. The increasing popularity of electric vehicles also has implications for home energy management.

SolarEdge is a leading supplier of inverters, which convert the DC power coming from solar panels into AC electricity.

First Solar specializes in high-efficiency, thin-film solar panels used in utility-scale and commercial solar installations. Jinko Solar is one of the largest providers of solar modules and silicon wafers — the material on which photovoltaic cells are generally based. Daqo New Energy also makes silicon wafers.

First Solar and Jinko announced first-quarter results on Thursday.

Renewables Cheaper Than Fossil Fuel

There are several reasons for the boom in solar-energy production and investments in the last few years, said Dan Siegel, chief executive of Birch Creek Development. Birch Creek develops and finances utility scale solar projects. One is solar price competitiveness. Renewables are now in many cases undercutting fossil fuels as the world’s cheapest source of energy.

“Solar and wind energy have been competing with and beating traditional power sources,” Siegel said.

The investment boom has also been supported by a massive push for renewables by corporations. And tax breaks have also played a key role. Solar developers rushed to take advantage of expiring tax breaks in the U.S., China, and Vietnam.

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Solar companies are developing larger scale and more efficient solar-energy systems. These can transmit energy longer distances, making it more widely available to consumers and businesses.

Recently, however, solar incentives have been leveling out and costs are rising.

“Despite (President) Joe Biden having very lofty and admirable goals on energy, we’re in a phase-down of solar tax credits,” Siegel said.

Biden’s still unpassed ‘Build Back Better’ bill, would provide huge incentives for solar energy development.

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Bloomberg says global private investment in the energy transition soared in 2021. Some $755 billion went into in energy transmission investments last year, with the U.S. setting a record of $105 billion.

But, to reach net zero emissions, annual clean energy investment worldwide will need to more than triple by 2030, to around $4 trillion annually, according to the IEA.

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The $105 billion in new private capital in the U.S. energy transition in 2021 is an 11% year-on-year increase and a 70% increase over the past five years. The 2021 total included $47 billion in renewable energy, as well as $35 billion in electrified transport, and a doubling of hydrogen investments to $200 million in 2021.

Large corporations are the biggest drivers of clean energy demand in the U.S.

Being Green Is Good For Companies

In his 2022 letter to CEOs, BlackRock’s Fink of BlackRock kept up the drumbeat of energy transition.

“In response to the energy shock caused by the war in Ukraine, many countries are looking for new sources of energy,” said Fink. “I believe that recent events will accelerate the shift toward greener sources of energy.

“More than ever, countries that don’t have their own energy sources will need to fund and develop them.”

For many that means investing in wind and solar power. Among industries, utilities have become leading implementers of solar generation. Other industries have also begun shifting to low emission, clean power technologies to attract and maintain institutional support.

Much of this year’s letter was devoted to Fink’s belief that a focus on environmental, social and corporate governance issues (ESG) is a method of reducing investment risk. Minimizing a company’s carbon footprint, for example, makes the business more resilient in the long term, which is in investors’ interests, he said.

ESG A Permanent Fixture Of Corporate World

ESG are non-financial factors investors use to measure a company’s sustainability. Corporations want to be good stewards. From a sales and marketing standpoint business that show a commitment to being green appeal to consumers.

Fink suggested that ESG was not a fad but a permanent feature of the corporate world.

The Securities and Exchange Commission on March 21, for the first time, published proposed rules that would require public companies to explain to shareholders and the federal government how they affect the climate.

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But the proposal has already provoked opposition from some business trade groups. And it may face court challenges, which could delay its effective date.

“The expansion of solar and wind is not just supported by push of policy but also the pull by corporate demand,” said Siegel.

And that should leave the light shining bright for solar power.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.