Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Enphase Is Down 7 Percent While Oil Holds Steady
Transcript
- Lucas: So Enphase Energy is down nearly 8 percent over the past five trading days. That is a sharp drop, and it stands out because oil prices have barely budged — WTI crude is basically flat around $69 a barrel. The divergence between clean energy stocks and traditional energy has been a theme all year, but this week it feels especially stark. Luna: Right, and it's not just Enphase. The Invesco Solar ETF, TAN, is down a fraction, but the broader clean energy ETF ICLN actually gained a bit. So there's a lot of nuance within the sector. Lucas: Exactly. First Solar, for instance, is basically flat over the same period — up 0.1 percent. So the sell-off is concentrated in names like Enphase, which are heavily exposed to the US residential rooftop market. And that brings us to the real story here: it's not about oil versus solar broadly. It's about which parts of the clean energy value chain are getting squeezed and why. Luna: Let's start with the macro picture. The 10-year breakeven inflation rate is at 2.24 percent, core CPI is still trending up. Higher for longer interest rates hurt residential solar because financing costs are a big part of those projects. But that's been true for over a year now. What changed this week? Lucas: Good question. Two things. First, there was a report that the US is considering new tariffs on imported solar components — specifically on cells and modules from Southeast Asia, where many US installers source their panels. That directly impacts the cost structure for companies like Enphase, which sells microinverters and battery systems that go with those panels. If the panels get more expensive, demand for the whole system could slow. Luna: And the second catalyst? Lucas: California's Net Energy Metering 3.0 policy, which took effect last year, continues to hammer the economics of rooftop solar for homeowners. New data from the California Public Utilities Commission showed that residential solar installations in the state were down about 40 percent year-over-year in the first quarter of 2026. California is Enphase's biggest market. So you've got a tariff scare and weak demand data hitting at the same time. Luna: Meanwhile, First Solar is mostly utility-scale. They build large solar farms, not rooftop systems. Their customers are utilities and corporations, not individual homeowners. And they manufacture their own panels in the US, so they're less exposed to import tariffs. That explains the divergence within the solar space. Lucas: Precisely. And then on the oil side, crude has been remarkably stable. WTI has traded in a roughly $67 to $72 range for weeks. The market is absorbing lots of supply — Iran has been exporting at a premium, US production growth has plateaued, but demand isn't collapsing either. So oil sits in a kind of equilibrium while the solar sector deals with its own micro-dramas. Luna: It makes you wonder: is the sell-off in Enphase an overreaction or a signal that the residential solar model is fundamentally challenged right now? Lucas: I think it's a bit of both. The tariff headlines are real, but they're not final yet. And California's NEM 3 is now fully baked into expectations — the 40 percent drop in installations is old news. So the market might be pricing in worst-case scenarios. On the other hand, if interest rates stay elevated and tariffs do materialize, Enphase's growth story really does take a hit. They've been diversifying into commercial and battery storage, but residential is still a huge chunk of revenue. Luna: And the oil-solar divergence is also a story about investor sentiment. The XLE energy sector ETF is down 0.8 percent over five days, not crashing. ICLN is up 1.2 percent. So the broad clean energy index actually outperformed oil stocks this week, even with Enphase dragging it down. That suggests investors are still buying the utility-scale and diversified clean energy names. Lucas: Which is a really important point. If you look at First Solar, NextEra, or the broader ICLN, they're not getting crushed. So the narrative that clean energy is universally underperforming oil is too simple. The real story is about which specific companies are vulnerable to policy and rate changes. Enphase in particular has a high beta to the housing market, and housing is struggling. Luna: Let's talk about that beta. Enphase's stock has been incredibly volatile over the past two years. It went from over $200 in 2022 to under $50 now. That's a decline of more than 75 percent. At $44.55, it's near multi-year lows. What would need to happen for the stock to recover? Lucas: Three things. First, clarity on tariffs — ideally no new tariffs or a phase-in that gives the industry time to adjust. Second, the Fed actually cutting rates, which would lower financing costs and make solar loans more attractive. And third, a recovery in California installs, which probably requires a policy revision or a big drop in hardware costs. None of those seem imminent in July 2026. Luna: So you're not bullish on Enphase near-term. Lucas: I'm cautious. The company has a strong balance sheet and a good product. But the headwinds are real and the stock is pricing in a lot of bad news already. The risk is that things get worse before they get better. Meanwhile, First Solar has a much clearer runway because they're selling to utilities that need to meet renewable portfolio standards regardless of interest rates. Luna: And what about the oil side? Does the stability in crude mask any risks? Lucas: Oil's calm is deceptive. Geopolitical risk is always there — we've got NATO tensions, Iran exports at a premium, and OPEC+ has been trying to manage supply. But the market seems to have priced in a kind of status quo. The real risk is a demand shock if the economy slows more than expected. Core PCE is at 130.1 and creeping up, so inflation isn't dead. If the Fed has to tighten again, that could hit oil demand and also hit solar stocks. It's not a one-way trade. Luna: Interesting. So the divergence could narrow if the macro environment deteriorates, because both sectors would get hit, just through different channels. Lucas: Exactly. Oil would drop on demand fears. Solar stocks would drop on rate fears and demand fears. They'd both go down, but solar has further to fall given how much it's already fallen. That's the scary scenario for clean energy investors. Luna: Before we move on, I want to touch on something you mentioned earlier — the tariff angle. There's a political dimension too. The current administration has been pushing for more domestic manufacturing. If tariffs on imported solar components go through, it could accelerate reshoring of solar panel production. That's good for First Solar, but bad for installers who rely on cheap imports. Lucas: Right. And that's the kind of nuance that gets lost when people just say 'clean energy is down' or 'oil is steady'. The market is making very specific bets on very specific companies. Enphase is getting punished because it sits at the intersection of residential housing, import exposure, and high interest rate sensitivity. First Solar is holding up because it sits at the intersection of utility demand, domestic manufacturing, and long-term contracts. Luna: And the oil companies like Exxon and Chevron? They've been basically flat this week. XOM up 0.3 percent, CVX down 0.2 percent. So even within energy, there's a split — oil producers are stable, oil services might be different. Lucas: Yeah, the XOP oil and gas ETF is down 0.9 percent, so some of the smaller producers are feeling more pressure. But the majors are in a sweet spot: they're generating a lot of cash, returning it to shareholders, and not over-investing in new supply. That discipline is keeping their stocks supported even when oil doesn't move much. Luna: It's a fascinating market structure. You've got the old energy sector acting almost like a bond proxy — steady yields, low volatility. And you've got parts of new energy acting like high-growth tech stocks — huge swings, macro-sensitive. Lucas: That's a great way to frame it. And it explains why the XLE and ICLN have been moving in opposite directions for much of the year. They're appealing to different investor bases. XLE is for income and stability. ICLN is for growth and optionality. But when rates are high, growth stories get discounted more heavily. Luna: So what's the one thing you'd tell a listener who's trying to navigate this? Lucas: Don't treat clean energy as a monolith. If you're interested in the sector, look at the specific business models. Companies with utility-scale, contracted revenue, and domestic supply chains are in a far stronger position than those dependent on the residential discretionary market. And keep an eye on the 10-year Treasury yield — that's probably the single biggest driver of relative performance between oil and solar right now. Luna: And on the oil side? Lucas: Watch the demand data. JOLTS, payrolls, consumer spending. If the economy softens, oil's stability will break. But as long as the labor market holds, oil probably stays in this range. It's not an exciting call, but sometimes the most accurate forecast is the boring one. Luna: Yeah, that makes sense. And it's actually a good segue to a quick behind the scenes thing. You know, the reason we can spend time on this kind of detailed analysis without being rushed by advertisers is that a small number of listeners chip in to support the show directly. Lucas: Yeah, it's true. If you've been listening and finding these episodes useful, there's a page at buy me a coffee dot com slash fexingo where you can toss a few bucks in the jar. It's not a subscription, no obligations — just a way to keep the podcast ad-free and focused on the economics, not the commercials. Luna: Exactly. And it genuinely helps. So back to the energy markets — we've been talking about the divergence within solar, but I also want to look at the natural gas side. Henry Hub is at $3.24, up a bit over the week. How does that fit into the picture? Lucas: Natural gas is a different story. It's been range-bound too, between $3 and $3.50 for a while. The big driver this summer has been power demand from air conditioning and data centers. But supply is ample, so prices aren't spiking. For solar, cheap gas doesn't help because it competes directly with solar for electricity generation. But if gas prices were to rise, that would actually improve the economics of solar for utilities. So right now, gas is just kind of there. Luna: So net-net, what's the takeaway for the rest of 2026? Lucas: I think we're in for more of the same unless there's a big catalyst — a Fed pivot, a tariff decision, or a geopolitical shock. The most interesting thing to watch is whether Enphase and other residential solar names can find a floor or whether they continue to slide. That will tell us a lot about how the market views the outlook for the housing market and consumer spending. For now, the data says caution. Luna: All right, a lot to chew on. Thanks, Lucas. Lucas: Thanks, Luna. We'll keep tracking it.