Residential Solar Installers Face Headwinds as Interest Rates Rise

Shares of Sunrun and Sunnova Energy International are experiencing a decline due to concerns expressed by an analyst about the impact of higher interest rates on residential solar installers.

Truist Securities analyst Jordan Levy recently downgraded shares of both Sunrun (RUN) and Sunnova (NOVA) from Buy to Hold. Levy also revised his price target for Sunrun from $30 to $12, and for Sunnova from $35 to $11.

As a result, Sunrun shares dropped by 3.8% to $10.26 in premarket trading on Wednesday, while Sunnova fell by 3.3% to $9.10.

The analyst’s research note explains that the recent sell-off in sustainability equities has renewed concerns among investors about a prolonged period of higher interest rates. This has prompted a reassessment of the near-term challenges faced by solar installers versus their long-term value creation potential. Furthermore, investors are closely monitoring profitability and margin improvement prospects, which have become more difficult to achieve given the current economic climate.

The Federal Reserve’s 11 interest rate hikes have been aimed at combating persistent inflation. However, these higher rates have increased the cost of financing projects such as installing solar panels, making it more expensive for consumers. Consequently, the solar industry has been impacted, with Sunrun shares plummeting by 56% this year, and Sunnova seeing a decline of 48%.

Looking ahead, solar companies are concerned about the continued impact of a policy of higher interest rates. If the central bank maintains this strategy to bring inflation down to its 2% target, customer demand will likely be further affected. Additionally, Levy believes that both companies will need to generate cash through progressively expensive growth in the near future.

In conclusion, it is evident that residential solar installers are facing headwinds due to the effects of rising interest rates. The challenges posed by these circumstances call for careful consideration of the trade-off between immediate obstacles and long-term value creation.