Residential solar power installations are part of the elephantine mix of infrastructure projects and concepts put forth in President Joe Biden’s $2-trillion American Jobs Plan.
And while residential solar is a fairly minuscule consideration in the plan’s energy-focused endeavors, analysts at BofA Securities are speculating on how this initiative could benefit a trio of companies in the space: Sunnova Energy International Inc. (NYSE: NOVA), Sunpower Corporation (NASDAQ: SPWR) and SunRun Inc. (NASDAQ: RUN).
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What The Plan Offers: The Biden plan proposes a 10-year extension and phase down of an expanded direct-pay investment tax credit (ITC) and production tax credit for clean energy generation and storage.
The plan is “sparse on details including the step-down rate for the ITC, whether the existing 2-Yr extension passed in Dec ’20 is included in the 10-Yr (uncertainty on whether an additional 8 or 10 years – thru ’33 or ’35), and direct pay refundability rate (unclear if haircut for option),” BofA’s Julien Dumoulin-Smith said in a note.
The current ITC schedule with the two-year extension features a 26% ITC through 2022, 22% for 2023 and 10% thereafter “with the ability to safe-harbor at higher ITC thru YE25,” the analyst said.
In creating scenarios to judge the future viability of the three companies, Dumoulin-Smith and his fellow analysts set the parameter for a 10-year ITC extension with last December’s two-year extension that resulted in the current schedule being shifted out by eight years: a 26% ITC from 2022-2030, with 22% from 2023-2031 and 10% afterward.
This evaluation is absent a safe harbor and does not measure “uplifts to value created per year on retrofit storage upsells enabled by the stand-alone storage ITC, nor examine any potential changes to NEM [net energy metering] policy, with overall focus on ITC (more than offsets risk),” Dumoulin-Smith said.
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What To Expect: Using this foundation, the analysts maintained Buy ratings on Sunnova and SunRun with price objectives of $56 per share and $78.50, respectively, while maintaining an Underperform on Sunpower with a $13 price objective.
The predictions are strictly hypothetical, since unexpected developments within the competitive residential solar environment — including other companies besides the three examined by the report, such as NextEra Energy (NYSE: NEE) and Avangrid (NYSE: AGR) — make it difficult to form an accurate prediction, Dumoulin-Smith said.
“The biggest impact in the new rules remain the prospects of refundability rather than the extension to the whole industry,” he said. “This would effectively allow smaller developers to pursue projects – this is the competitive element that is unclear and offsetting to the economics contemplated below for scale-resi players like NOVA & RUN as well as NEE/AGR.”
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