Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Solar Stocks Are Falling Faster Than Oil
Transcript
- Lucas: Oil is down more than five percent in the last five trading days — WTI crude closed Friday around seventy dollars and seventy-eight cents a barrel. But here's the weird part: clean energy stocks are getting hammered even harder. Luna: Yeah, the iShares Global Clean Energy ETF — ICLN — is down almost four percent in that same window. The solar-specific one, TAN, down four and a half. And Enphase dropped nearly ten percent in a week. Lucas: That's the kind of move you'd normally expect from a small-cap biotech, not a solar inverter company with a market cap still north of six billion. So what's going on? I think the simplest explanation is that clean energy stocks are caught in a global tech rout, not an energy rout. Luna: Well, we saw South Korea's Kospi sink eight percent overnight, and the sell-off in tech names like SK Hynix and SoftBank was brutal. But does that really spill over into solar? Enphase isn't a semiconductor company. Lucas: It's not, but it trades like one. I mean, look at the beta on Enphase — it's been well above two for years. So when the market decides to rotate out of growth and into defensives, solar gets caught in the dragnet. And that's exactly what's happening this week. The VIX is up, the S&P 500 futures are negative, and any stock with a high multiple gets repriced first. Luna: Right, and Enphase's forward price to earnings ratio is still around twenty-five, even after this drop. That's not extreme for solar, but in a risk-off week, it's vulnerable. Lucas: Exactly. But there's a second factor that's more specific to clean energy: interest rate sensitivity. The ten-year breakeven inflation rate ticked up to two point two one percent on Thursday, and core CPI is still climbing — May's reading was three hundred thirty-six point one, up from three hundred thirty-five point four two in the prior month. Luna: Higher inflation expectations mean higher for longer on rates, and that's poison for capital-intensive industries like solar and wind. Their cost of capital goes up, future cash flows get discounted more heavily, and the stock prices adjust. Lucas: Exactly. Meanwhile, oil producers like Exxon and Chevron — they're down only a fraction of a percent over the week. Exxon is basically flat. Chevron down less than one percent. So the energy sector itself, as measured by the XLE, is actually up one point three percent. That's a huge divergence. Luna: So the old economy energy stocks are holding up because they're cash-flow machines. They throw off dividends, they buy back shares, and they don't need to borrow at high rates to build new projects. Solar and storage, by contrast, are still scaling up. Lucas: Right. And there's also a geopolitical angle this week that might be hurting clean energy indirectly. The UN watchdog said it has access to Iran's nuclear sites after an interim peace deal. That's a big de-escalation. And the UN agency also paused a Hormuz ship evacuation plan after the first vessel attack under the deal. Luna: So the Strait of Hormuz risk premium is coming down. That's bearish for oil prices, yes, but it also removes some of the urgency around energy transition. If geopolitical tensions ease, the 'we need renewables for energy security' narrative loses a bit of steam. Lucas: Exactly. Not a lot — the energy transition is driven by policy and economics, not just headlines — but in the short term, it takes a tailwind away. And on top of that, natural gas is quietly up two point four percent this week, to three thirty-three per MMBtu. That's a competitor to solar in power generation. Luna: So if gas is cheaper and more available, utilities like NextEra — which was actually up one point one percent this week, by the way — might lean more on gas and delay some solar buildouts. But NextEra being up while pure-play solar gets crushed is interesting. Lucas: It shows that investors are distinguishing between regulated utilities with diversified assets and high-growth solar names that depend on low interest rates and continuous policy support. NextEra has a big renewable pipeline, but it also has a regulated utility base that provides stable earnings. That's a cushion. Luna: So for someone watching Enphase or First Solar drop — First Solar was down three and a half percent — what's the takeaway? Is this a buying opportunity or a sign to stay away? Lucas: I'd say it depends on your time horizon. If you believe the energy transition is still on track — and I do — then this sell-off is about macro headwinds, not a collapse in fundamentals. Enphase still has a strong position in residential solar and battery storage. But in the near term, until we see inflation data soften and the Fed signal a pause, these stocks will remain volatile. Luna: And the oil stocks? They seem to be in a different universe right now. But if oil prices keep falling — we're already below seventy-one on WTI — eventually that hits earnings. Exxon's dividend is safe, but share buybacks might slow. Lucas: That's the risk. The XLE is holding up because the market is pricing in a relatively stable oil price around seventy to seventy-five. But if demand destruction from a global slowdown accelerates — and the tech rout suggests that fear is real — then oil could break lower and the energy sector would follow. Luna: So we've got a two-tier market: oil and gas producers as value plays, clean energy as growth plays — and both are under pressure, but for different reasons. Lucas: Right. And one thing that ties them together is that the market is basically saying: 'I don't trust the growth story right now, and I'm not sure the value story will hold up either.' That's the kind of environment where you see broad-based selling. Luna: It makes you appreciate how much walking through the economy with us every day helps make sense of these cross-currents. If that's been valuable to you, we do want to mention something. Lucas: Yeah. We deliberately don't run ads on these episodes. No sponsors, no mid-roll interruptions. If you want to support that choice, the easiest way is at buy me a coffee dot com slash fexingo. It's a simple way to keep the show ad-free and independent. Luna: Totally optional, no pressure. Just a heads-up for folks who find value here. Lucas: Alright. Back to the numbers. One more thing I want to flag: the PCE price index for May came in at one hundred thirty-one point five, up from one hundred thirty point nine four in April. That's the Fed's preferred inflation gauge, and it's still trending up. Core PCE, which excludes food and energy, is also up. Luna: So even as oil prices drop — which should lower headline inflation — core inflation is stickier. That keeps the Fed in a hawkish posture, which is the last thing clean energy stocks need. Lucas: Exactly. And it also means that the oil price decline might not translate into lower interest rate expectations, because the market sees the drop as demand-driven — a recession signal — rather than supply-driven. Luna: So lower oil prices are actually a negative signal for the economy overall? That's a counterintuitive point. Usually lower oil is good for consumers. Lucas: Normally, yes. But when oil falls because factories are cutting jobs and global trade is slowing — which is exactly what we're seeing — it's not a tax cut. It's a symptom. The headline we mentioned earlier about South Korea's Kospi falling eight percent? That's not just tech. It's a proxy for global trade, because South Korea is a bellwether for exports. Luna: Right. So the clean energy sell-off is partly tech rout, partly interest rate sensitivity, and partly a macro growth scare that hurts all risk assets. And the oil sector is holding up because it's already priced for a slowdown. Lucas: I think that's a fair summary. The question going into next week is whether we get any data that breaks the gloom. If the next jobs report comes in hot, or if the Fed signals a pause, you could see a sharp reversal in clean energy. But if the macro data continues to soften, the divergence might widen. Luna: And natural gas at three thirty-three — up two and a half percent this week — seems to be the quiet winner. It's not exciting, but it's steady. Lucas: Exactly. Sometimes the boring trade is the right one. Alright, that's all for this episode. We'll be back tomorrow with more.