Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why First Solar Is Surging While Big Oil Dithers
Transcript
- Lucas: First Solar is up thirteen point six percent in the last five trading days. That's not a typo. As of this morning, June 3rd, the stock sits at three hundred and eleven dollars. Luna: And meanwhile, crude oil is basically treading water. WTI at ninety-seven sixty, Brent just over a hundred. Big Oil stocks are green, but barely — Exxon up one percent, Chevron up two point eight. Lucas: Right. So the market is sending a pretty clear signal right now. Renewable energy, particularly utility-scale solar, is being treated as a growth story. Oil and gas are being treated as cash cows with limited upside. Luna: Is that just a momentum trade, or is there something structural going on? I mean, First Solar's been on a run for months. Lucas: I think it's structural. The Inflation Reduction Act's production tax credits are starting to really flow into domestic solar manufacturing. First Solar's new factories in Alabama and Ohio are ramping up. They're one of the few players that makes panels entirely in the US, which matters when tariffs are expanding. Luna: And those headlines this morning about new tariffs on sixty economies — that's going to reinforce the domestic supply chain premium, isn't it. Lucas: Exactly. If you're a utility buying solar panels, you want to avoid tariff risk. First Solar's made in usa panels become the safe choice. But there's another layer here: AI data centers. Luna: Ah, the power demand story. Big Tech is basically begging for electricity. Lucas: Right. There was a headline yesterday about Big Tech's AI ambitions posing a major power test for Europe. Same thing in the US. These companies need gigawatts of new capacity, and they want it clean. Solar, especially utility-scale, is the fastest to deploy. Luna: So First Solar is getting a double boost: policy tailwinds and demand from the AI build-out. Meanwhile, what's holding Big Oil back? Lucas: Part of it is that oil prices have been volatile. We saw crude spike in April on Middle East tensions, then fall back. Companies like Exxon and Chevron are being disciplined — they're returning cash to shareholders via buybacks and dividends rather than ramping up capex. Luna: Which investors do reward, but it caps the growth multiple. XLE, the energy sector ETF, is up just one point seven percent this week. Compare that to the solar ETF TAN, up two point five, or the broader clean energy ETF ICLN, up two point six. Lucas: That divergence is the story of 2026 so far. And I think it's going to persist. The 10-year breakeven inflation rate just dipped to two point three nine percent — inflation expectations are moderating. That's good for growth stocks with long-duration cash flows, like solar manufacturers. Luna: But isn't there a risk that First Solar gets overbought? The stock is up over thirty percent year to date. At some point, expectations get high. Lucas: Absolutely. Valuation matters. First Solar trades at a premium because of its growth trajectory and moat. But if the IRA gets modified, or if cheaper imported panels find a way around tariffs, that premium could compress. Luna: Speaking of which, what about the rest of the solar space? Enphase is up two point nine percent this week, but NextEra Energy is actually down a bit. Lucas: NextEra is a regulated utility, so it's a different beast. They have a huge renewable portfolio, but they're also subject to rate cases and interest rate sensitivity. The ten-year yield has been bouncing around — that affects their cost of capital. Luna: So the market is distinguishing between pure-play solar manufacturing and integrated utilities. That's pretty nuanced. Lucas: It is. And I think the key insight is that the clean energy rally isn't a rising-tide-lifts-all-boats story right now. It's very stock-specific. First Solar has a unique competitive position. Enphase has a different one — they make microinverters, mostly for residential solar, which is a slower market. Luna: Residential solar has been hurt by higher interest rates and net metering policy changes in California. So that makes sense. Lucas: Right. So the winning trade right now is utility-scale, policy-protected, domestic solar. That's First Solar's lane. Luna: And the losing trade? At least in relative terms, it's oil & gas producers who can't convince the market they have a growth story. Lucas: They don't need a growth story if they keep generating free cash flow and returning it to shareholders. But the market is rewarding them with lower multiples. That's the compromise. Luna: So if you're an investor looking at this landscape, what's the takeaway? Lucas: I think you have to decide which time horizon you're playing. Over the next year, the ai driven electricity demand narrative is real, and it favors renewables. Over the next five years, if oil demand plateaus, Big Oil's cash flows become less certain. But in the near term, oil is still ninety-seven dollars a barrel — these companies are making a lot of money. Luna: It's almost like two different asset classes in the same sector. Lucas: Exactly. And the market is pricing them accordingly. Luna: Hey, if this kind of breakdown is useful to you, walking through the energy economy with us and making sense of the numbers — that's what we try to do every day. And the way these stay ad-free is listener support. If you've gotten something out of it, you can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to keep the show going without sponsors. No pressure at all. Luna: Right. So back to the divergence — do you think this is a temporary rotation, or the start of a longer-term trend? Lucas: I lean toward structural. The IRA created a ten-year policy framework. AI demand isn't going away. And Big Oil is signaling through their actions — low capex, high returns — that they don't see a compelling reinvestment opportunity in new supply. That tells me the market is correct to assign a higher growth premium to renewables. Luna: Even if oil prices stay elevated. Lucas: Even if. Because it's not about the price today, it's about where the incremental barrel comes from in five years. And increasingly, it's coming from solar panels and batteries.