Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Clean Energy Stocks Are Falling While Oil Holds Steady
Transcript
- Lucas: Oil is basically flat this week—WTI around ninety dollars and change, Brent holding above ninety-three. But clean energy stocks? They're getting absolutely hammered. The iShares Global Clean Energy ETF, ticker i c l n, down seven and a half percent in five days. The solar ETF T-A-N off ten percent. Enphase down twelve percent. This is not a small blip. Luna: And it's not just speculative names. First Solar, which had been a darling, fell almost eight percent this week. That stock was over three hundred dollars not long ago. Lucas: Right. So the question is: why is the market punishing clean energy while oil and gas stocks are more or less holding serve? XLE, the energy sector ETF, actually up a little. Exxon, Chevron, ConocoPhillips all green. The divergence is stark. Luna: Part of it has to be the macro. The ten-year Treasury yield is still elevated, and clean energy stocks trade like long-duration assets. Higher rates compress the present value of future cash flows. Lucas: Absolutely. But there's something more specific happening here. The Iran conflict has created uncertainty around oil supply, which is supportive for crude. But for solar and wind, the conflict is actually a double negative. It's pushing up shipping costs, insurance premiums, and it's complicating supply chains for components that come through the Middle East. Luna: Plus, the headlines about Iranian assets and Gulf reconstruction—that's a geopolitical risk premium that flows into oil, not into renewables. Lucas: Exactly. But I think the bigger, less understood story is a manufacturing glut. The Inflation Reduction Act, the IRA, poured a ton of capital into domestic solar and battery production. But the market is now realizing that supply is outstripping demand. Luna: How bad is the oversupply? Lucas: Look at solar modules. In 2024 and 2025, companies announced over fifty gigawatts of new module manufacturing capacity in the U.S. alone. But actual installation demand this year is probably around thirty-five gigawatts. That's a huge gap. Module prices have fallen sharply, and margins are getting crushed. Luna: And that feeds into the battery storage story too. Battery pack prices dropped about thirty percent in 2025, and they're down another twenty percent so far in 2026. That's great for consumers, but terrible for manufacturers who built capacity expecting higher prices. Lucas: Enphase and SolarEdge are particularly exposed because they're heavily tied to the residential solar market, which is also slowing. Higher interest rates make financing a rooftop system more expensive. And net metering policies are being rolled back in key states like California. Luna: But First Solar is a utility-scale player. They have a different business model. Why are they getting hit? Lucas: First Solar is more insulated from the residential slowdown, but they're not immune to the module glut. Their thin-film technology has a cost advantage, but if crystalline silicon prices keep falling, that advantage narrows. Also, they have exposure to the Middle East through some large project pipelines. The Iran conflict creates execution risk. Luna: Let's talk about the tariff angle. The U.S. has tariffs on Chinese solar components, but there are loopholes. Companies have been routing modules through Southeast Asia. Recent enforcement actions have tightened that, creating uncertainty. Lucas: Right. The Commerce Department has been investigating circumvention. If tariffs are applied retroactively or more broadly, it could disrupt supply. But paradoxically, it could also protect domestic manufacturers from foreign competition. So for First Solar, tighter enforcement could be a positive. But the market is pricing in the worst-case scenario. Luna: Interestingly, NextEra Energy, ticker n e e, was up three and a half percent this week. That's a utility with massive renewables exposure, but they have regulated earnings and a strong balance sheet. Lucas: That's the key distinction. NextEra is a utility that owns renewable assets. They benefit from building and operating wind and solar. But the pure-play equipment makers and developers are the ones getting squeezed. It's a sector rotation within clean energy itself. Luna: So is this a buying opportunity? If you believe in the long-term transition, these stocks are down a lot. Lucas: That's the billion-dollar question. I think you have to distinguish between the structural growth story and the near-term oversupply. The IRA is still a massive tailwind over the next decade. But the next six to twelve months could be painful as excess capacity gets absorbed. Luna: What would signal a bottom? Lucas: You'd want to see capacity rationalization—companies shelving expansion plans, maybe some bankruptcies in the weakest players. Also, a stabilization in module pricing. And on the macro side, lower interest rates would help. But the Fed is on hold right now with inflation still sticky. Luna: The core PCE is still running above target, and the ten-year breakeven inflation is around two point three six percent. So we're not getting rate cuts soon. Lucas: Right. And that keeps the pressure on. But here's a contrarian thought: the selloff might be overdone for the best-positioned names. First Solar trades at about fifteen times forward earnings. Enphase at around eighteen. Those are not bubble valuations anymore. Luna: But they could get cheaper if the earnings estimates come down. And with the manufacturing glut, estimates are likely to be revised lower. Lucas: That's the risk. The market is pricing in that downgrade cycle. So even if valuations look reasonable, they might not be the bottom yet. I think investors need to be patient and wait for the actual news flow to turn. Luna: It feels like the clean energy sector is going through an adolescence. The policy support is there, but the industry is learning that building too much capacity too fast has consequences. Lucas: That's a great way to put it. And honestly, if walking through the economy with us has made something click, and it feels worth a coffee to you, there's a link for that. It's buy me a coffee dot com slash fexingo. That's how this stays ad-free. Luna: Yeah, it's a small thing that makes a big difference. Keeps us independent. Lucas: So back to the energy landscape. One thing I'm watching for the second half of 2026 is whether the natural gas price rally continues. Henry Hub is up about two percent this week, and if we get a hot summer, that could shift some dynamics. Luna: How would higher gas prices affect clean energy? Lucas: It's a mixed bag. Higher gas prices make renewable power more competitive on a levelized cost basis. But they also increase electricity costs overall, which could hurt demand for residential solar if consumers are already squeezed by inflation. Luna: And utilities are still building gas plants for reliability. We talked about that a few episodes ago. Lucas: Right. So the energy transition isn't linear. The next few months will tell us a lot about which companies have the balance sheet and technology to survive this shakeout. Luna: And which ones were overhyped.