Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why First Solar Is Surging While Oil Tumbles in May 2026
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- Lucas: First Solar, ticker symbol f s l r, is up 19 percent over the past five days. That is more than three times the gain of any other large-cap solar stock in the same window. And it is happening while WTI crude has fallen 7 percent and the energy sector is down more than 5 percent. Luna: That is a stark divergence. I mean, we have covered the oil-solar split before, but 19 percent in a week for a single company — that warrants its own conversation. Lucas: Absolutely. And it is not just a one-week fluke. First Solar has been the best-performing stock in the TAN solar ETF over the past three months and over the past year. The ETF itself is up 12 percent this week, but First Solar is outrunning even that. Luna: So what is the catalyst here? Is it earnings, a contract announcement, or something structural? Lucas: It is partly structural, partly a repricing of risk. First Solar reported first-quarter earnings in late April that beat expectations, but that alone does not explain a 19 percent weekly move. What has happened since then is a series of analyst upgrades and price-target increases, all citing the company's massive backlog of orders for utility-scale solar panels. Luna: Remind me — First Solar uses cadmium telluride thin-film technology, not the standard silicon panels that most Chinese manufacturers produce. That gives them a different competitive position. Lucas: Exactly right. Their panels are less efficient in terms of raw conversion rate, but they are cheaper to manufacture at scale and perform better in hot, humid conditions. More importantly, First Solar manufactures almost entirely in the United States and Malaysia. That is a huge advantage right now because tariffs on Chinese solar imports have effectively locked out the cheapest silicon panels from the U.S. market. Luna: So they are basically the go-to domestic supplier for large-scale solar farms, especially with the Inflation Reduction Act tax credits making those projects more economical. Lucas: Precisely. The IRA includes a 10 percent bonus credit for solar projects that use domestically manufactured cells and modules. First Solar is the only U.S.-based manufacturer that can produce enough volume to serve those projects. Their backlog is now over 80 gigawatts, which represents roughly three years of production at current capacity. Luna: Eighty gigawatts is enormous. That is basically the entire installed solar capacity of the United States a few years ago. Lucas: It is. And that backlog gives investors visibility into future revenue that very few energy companies can match right now. When oil companies are cutting guidance because of price volatility, First Solar can point to a contracted, dollar-denominated backlog that extends into 2029. Luna: But does the market really believe that backlog is secure? I mean, solar project developers often delay or cancel projects if financing costs rise or if policy changes. Lucas: That is a fair concern, and it is why First Solar has historically traded at a discount to its backlog value. But what has shifted recently is the interest-rate narrative. The ten-year Treasury yield has fallen from about 4.7 percent in April to around 4.35 percent now. Lower rates reduce the cost of financing large solar projects, making it more likely that those backlogged orders actually get built. Luna: So lower rates are a tailwind for solar, but they are also a headwind for oil? Because oil prices have been sliding. Lucas: Yes, but the oil price drop is driven more by supply dynamics and geopolitical risk repricing. The headlines about a potential end to the Iran conflict have taken the war premium out of crude. WTI is below 88 dollars a barrel, Brent below 92. That is down significantly from the peaks earlier this year. Luna: And energy stocks like Exxon and Chevron are down even more than crude this week. Exxon is off 6.2 percent in five days, Chevron down 4.7 percent. That is a bigger drop than the commodity itself. Lucas: Right, and that tells you the market is pricing in lower future cash flows for those companies, not just a temporary dip in spot prices. Meanwhile, First Solar is pricing in higher future cash flows. The divergence is about long-term expectations, not just this week's headlines. Luna: So is First Solar a buy here, or is the market getting ahead of itself? The stock is trading around 307 dollars, which is near its all-time high. Lucas: It is definitely not cheap on an earnings basis. The trailing price to earnings ratio is over 20, and forward P/E is around 18. But growth investors are willing to pay that because they see a clear pathway for earnings to double over the next three years as new manufacturing capacity comes online. Luna: They are building a new factory in Louisiana, right? And expanding in Ohio. Lucas: Yes. The Louisiana facility is expected to start production in 2027 and will add about 3.5 gigawatts of annual capacity. Combined with their existing plants, that should bring total U.S. capacity to roughly 14 gigawatts per year. That is enough to cover a significant share of domestic utility-scale solar demand. Luna: And that demand is growing. The U.S. Energy Information Administration projects that utility-scale solar will account for over 60 percent of new electricity generation capacity added this year. Lucas: It is a massive build-out. And the interesting thing is that First Solar is not the only beneficiary. Enphase Energy, which makes microinverters, is up nearly 7 percent this week. But First Solar is the purest play on utility-scale, which is where the bulk of the capacity additions are happening. Luna: So when we talk about the 'great energy rotation' — money moving from fossil fuels to renewables — First Solar is the poster child. Lucas: It is. But I want to be careful not to overstate the narrative. The energy sector as a whole is still dominated by oil and gas. XLE, the energy sector ETF, has a market cap of over 400 billion dollars. TAN, the solar ETF, is about 12 billion. We are talking about a niche within a niche. Luna: Still, the signal is there. And for listeners who follow this show, we try to find those signals before they become consensus. Lucas: That is exactly why we dig into these divergences. If walking through the economy with us has made something click — maybe a new way to think about energy markets, or just a better understanding of how these numbers connect — that is the kind of insight we try to deliver every day. And listener support is what keeps this show ad-free and independent. If you find value in that, you can support us at buy me a coffee dot com slash fexingo. Luna: Yeah, it is a small gesture that goes a long way in helping us keep the economics conversation going. Lucas: So back to First Solar. The key question going forward is whether the stock can sustain its premium if interest rates stop falling or if policy around solar tariffs shifts. The current tariff regime on Chinese solar cells expires in 2027, and there is always the risk that a future administration could reduce it. Luna: That is a real risk. First Solar's competitive moat is partly man-made — it depends on trade policy. Lucas: Exactly. If tariffs were removed, cheap Chinese panels would flood the market again, compressing First Solar's margins. But for now, the policy environment is strongly supportive, and the company is executing well. Investors are betting that execution will continue. Luna: And the oil side of the trade? We have seen oil stocks getting hammered. Is there a buying opportunity there, or is the sell-off justified? Lucas: It depends on your time horizon. If you believe the Iran situation stabilizes and OPEC+ maintains discipline, current oil prices might be below long-term equilibrium. But the market is clearly worried about demand growth slowing and supply coming back online. Energy stocks are pricing in a lower for longer oil environment. Luna: So for a listener trying to decide where to allocate capital, the solar versus oil trade right now is not just about price momentum. It is about which companies have visibility into future cash flows. Lucas: Right. First Solar has a contracted backlog. Exxon does not. That is the fundamental difference. And that is why the market is rewarding one and punishing the other. Luna: We will be watching whether the divergence continues or whether oil stocks eventually offer a value entry point. For now, First Solar is the story. Lucas: And we will keep tracking it. That is it for today's episode. Next time, we will look at what the recent drop in the ten-year breakeven inflation rate means for energy commodities. See you then.