Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Clean Energy Stocks Are Falling While Solar Companies Struggle
Transcript
- Lucas: So here's a number that jumped out at me this week: the clean energy ETF ICLN is down six and a half percent over the last five trading days. TAN, the solar ETF, is down over nine percent. And that's while the broader energy sector, measured by XLE, is actually up one point three percent. Luna: So oil stocks are gaining while solar is getting crushed. That feels backwards from the narrative we've been hearing. Lucas: Exactly. And it's not just a one-day blip. Look at Enphase — down almost ten percent this week. First Solar, down nearly seven. Meanwhile, ConocoPhillips is up one point eight percent, Chevron up one point one. The divergence is pretty stark. Luna: So what's driving it? Is this just a risk-off rotation, or is there something specific to clean energy? Lucas: I think it's a combination. The big macro story this week is that the Nasdaq had its worst day in nearly eight months, driven by a tech selloff. And clean energy stocks — especially solar — trade a lot like tech. They're high-growth, long-duration assets. Their valuations are sensitive to interest rates. Luna: Right, because future cash flows get discounted more heavily when rates are higher. And rates have been creeping up. Lucas: Exactly. The ten-year breakeven inflation rate ticked down slightly to two point three six percent, but the nominal yield has been under pressure. And the core PCE price index, the Fed's preferred inflation gauge, is still at one hundred twenty-nine point six, up from last month. So the market is pricing in that rates stay higher for longer. Luna: Which hurts solar companies that need to borrow to build projects, and also makes their future earnings less valuable today. Lucas: Right. And compare that to an oil major. Exxon is up zero point six percent this week. Chevron up one point one. These companies are generating massive free cash flow right now, and they're returning it to shareholders through buybacks and dividends. Investors are paying for that cash today, not waiting years for it. Luna: So it's a classic growth versus value rotation, but within the energy sector itself. Oil stocks become the value play. Lucas: Exactly. And there's a policy angle too. We're in June 2026, and the regulatory outlook for renewables in the US is still uncertain. There's no new clean energy mandate coming out of Washington anytime soon. Meanwhile, oil companies are enjoying record margins from refining, which we've talked about before. Luna: So the market is basically saying 'we trust oil cash flows now more than solar promises later'. Lucas: That's the read. But it's not just about trust. It's about the math. When the risk-free rate goes up, the hurdle rate for any investment goes up. And solar projects have high upfront costs and pay back over twenty years. At a four percent discount rate, they look fine. At six percent, a lot of projects don't pencil out. Luna: And that's why we see ICLN and TAN down so sharply. It's a repricing of that risk. Lucas: Right. Now, I want to be careful not to overstate this. One week doesn't make a trend. And the long-term case for renewables is still intact — global demand for energy is growing, and carbon constraints aren't going away. But the market is telling us that right now, the economics favor fossil fuels. Luna: It's also worth noting that natural gas is up one and a half percent this week, even as oil pulled back. So gas is having its moment too. Lucas: That's a good point. The XLE is actually being lifted by gas-weighted producers. And NextEra Energy, which is a big utility with a huge renewables pipeline, is up two point six percent this week — so not all clean energy is down. NextEra is more of a regulated utility, so it's less sensitive to rate moves than pure-play solar. Luna: So the selloff is concentrated in the high-beta names. Enphase, First Solar, those are the ones getting hit hardest. Lucas: Exactly. And if you look at the options market, the implied volatility on those stocks has spiked. There's real fear that if rates keep rising, the whole solar financing model gets squeezed. Luna: I think one thing that's easy to miss is that the broader market selloff today, with the Nasdaq falling, is partly about Alphabet seeking fresh capital. That headline shook confidence in big tech's balance sheets. Lucas: That's a good connection. When a company like Alphabet, with over a hundred billion in cash, decides to raise capital, it tells you that even the strongest companies see turbulence ahead. And that sentiment spills over into every growth sector, including clean energy. Luna: So we have a perfect storm: higher rates, policy uncertainty, a tech-led market selloff, and a rotation into cash-flowing value stocks. That explains why solar is getting hammered while oil stocks hold up. Lucas: Yeah. And it's a reminder that energy investing is never as simple as 'renewables go up, fossil fuels go down'. There are real economic forces at play — discount rates, capital costs, regulatory timelines — that determine who wins in any given year. Luna: Speaking of real economic forces, one thing that keeps this show sustainable is that we don't run ads. If walking through the economy with us has made something click, and you want to support that choice, the link is buy me a coffee dot com slash fexingo. Lucas: Yeah, that's right. It's a small way to keep this ad-free and focused on the numbers. Truly appreciate those who do. Luna: Alright, back to the divergence. Lucas, if you had to pick one metric to watch over the next month to see if this trend continues, what would it be? Lucas: I'd watch the ten-year Treasury yield. If it breaks above four point five percent, expect more pain for clean energy stocks. If it stabilizes or falls, we might see a bounce. But also watch the policy front — any news on the Inflation Reduction Act implementation or new tariffs on Chinese solar panels could shift the narrative quickly. Luna: And on the oil side, what could break the rally there? Lucas: A sharp drop in crude prices. WTI is around ninety-six dollars a barrel right now, up from ninety-one at the start of the month. If that reverses, the XLE rally could unwind fast. But for now, the cash flows are too strong to ignore. Luna: So it's a tale of two energies, shaped by the same macro forces but in opposite directions. Lucas: Exactly. And that's what makes this such a fascinating space to watch. The energy transition isn't linear — it's a messy, market-driven process where capital flows to the highest risk-adjusted return in any given moment. Right now, that's oil and gas. But that can change. Luna: And we'll be here to track it. That's it for this episode of Energy Economics with Fexingo. See you next time.