Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Enphase Dropped 9 Percent in a Week
Transcript
- Lucas: Oil is in freefall this week. WTI crude down nearly 11 percent in five days, trading at $75.60 a barrel as of this afternoon. Brent not far behind at $79.13. That is a pretty violent move even by recent standards. Luna: And yet, clean energy stocks aren't catching the bid you'd expect. Enphase Energy is down over 9 percent this week to $49.90. The Invesco Solar ETF, TAN, is off 3.5 percent. Even the broader clean energy ETF, ICLN, is only flat. Lucas: Right, that's the puzzle. Conventional logic would say cheaper oil reduces the urgency for renewables, but it also lowers input costs and could boost consumer spending. But we're seeing solar names get hit hard. Let's zoom in on Enphase specifically, because that 9 percent drop in a week is notable. Luna: I looked at the chart earlier. Enphase is now trading below its 60-day moving average for the first time since early April. That's a technical level a lot of algorithmic funds watch. Lucas: And the fundamental picture is mixed. Enphase reported decent numbers last quarter—revenue was up about 15 percent year-over-year, and they guided in line. But the market is forward-looking. The concern right now is interest rates. The Fed is in the middle of a two-day meeting that concludes tomorrow, and there's chatter that the new Fed chair, Kevin Warsh, might actually dial back some of the transparency the Fed has built up. Luna: Higher for longer rates are brutal for solar. These companies rely on financing—both for their own working capital and for their customers who lease panels. Every 50 basis points of rate increase effectively raises the cost of a solar installation by several percentage points. Lucas: Exactly. And here's where oil comes in. If oil is crashing because the market expects a global economic slowdown—and we're seeing Chinese demand drop, as we've discussed in previous episodes—then that same slowdown also hurts demand for new solar installations. It's not a clean substitution. Luna: So the old narrative that low oil = good for renewables because it frees up consumer spending isn't holding. The market is looking at the demand side of the equation for both. Lucas: Right. And there's another layer: the Iran deal. We've talked about that a lot. Today, Trump said the U.S. will 'go right back to dropping bombs' if he doesn't like the deal. That kind of headline adds geopolitical uncertainty. Oil traders are pricing in a flood of Iranian supply, which pushes oil down, but it also creates uncertainty for any energy investment. Luna: Enphase specifically also has company-level risks. They're heavily exposed to the U.S. residential market, and that market is slowing. Installer bankruptcies have picked up this year. Higher rates are squeezing margins. Lucas: And their valuation. Enphase trades at around 22 times forward earnings. That's not crazy for a growth stock, but it leaves little room for error. When the market reprices risk, those multiples compress fast. Luna: So what's the bull case here? If someone is listening and thinking, 'This is a buying opportunity,' what would they point to? Lucas: The bull case is that Enphase has a dominant market share in microinverters, they have a new product line—the IQ8—that is gaining traction, and they are expanding into commercial and storage. If rates stabilize or fall, the stock could rebound quickly. But that's a big if. Luna: I've been thinking about something related. This episode has really helped me understand why clean energy isn't moving with oil right now. If it's been useful for you too, that's exactly why we do this. Lucas: Yeah, and the way we keep these episodes ad-free and focused is through listener support. If walking through the economy with us has made something click, you can buy me a coffee dot com slash fexingo. Luna: We don't have sponsors or ads, so every little bit helps keep this going. Now, back to the numbers. Lucas: One other data point that stands out: the U.S. Energy Information Administration reported last week that utility-scale solar installations are on track to grow 25 percent this year. That's the macro trend. But the stock market is pricing in the next six months, not the next five years. Luna: So the disconnect between the real economy and the stock market is real. Installations are growing, but stocks are falling. That's actually common in early-cycle slowdowns. Lucas: Yes. And that's why we look at both. Enphase is down 9 percent this week. NextEra Energy, which is more regulated and has a large utility business, is actually up 1 percent. So the market is punishing the riskier names. Luna: What about the broader clean energy ETF, ICLN? Flat this week. That tells me the pain is concentrated in the high-beta names. Lucas: Exactly. ICLN has a mix of utilities, equipment makers, and developers. Enphase is a pure play on residential solar, which is the most interest rate sensitive segment. So if you believe rates will peak soon, Enphase could be the trade. But if you think the economy is rolling over, stay away. Luna: And the Fed decision tomorrow could be a catalyst either way. The market is pricing in a hold, but any hawkish language could send Enphase even lower. Lucas: We'll be watching. For now, oil at $75, Enphase at $50, and a lot of uncertainty. Thanks for joining us on Energy Economics.