Likely Solar Winners Under New Obama Budget — and China

On the Obama budget, investors just need to keep in mind that the verdict is that the budget will not be adopted. The president does not have the support from the House or from the Senate. Still, it also goes without saying that at least some parts of the proposal might have some life.

The new budget proposes that the renewable energy subsidy gets extensions for the solar Investment Tax Credit (ITC) and wind Production Tax Credit (PTC). While this may be the equivalent of the administration’s wish list, it is at least a formal attempt to keep solar and wind front and center.

A new research report from Credit Suisse shows that the firm does not believe that the solar or wind tax credit extensions are imperative because the leading companies already have cost reduction targets in place ahead of a lower-subsidy environment. The report said:

Solar projects currently receive a 30% ITC which is scheduled to decline to 10% starting Jan 1, 2017, under existing legislation, and wind projects receive a $2.2c/kWh PTC for 10 years which expired at the end of 2014, but has historically been renewed every year, often at the 11th hour retroactively. We believe making the tax credits permanent (or at least without a specific sunset date) would be a very sizable positive for downstream solar/wind developers as it would enable continued improvements in project economics as costs continue to fall, allowing a more gradual market growth (instead of late 2016 rush) and enable utility-scale projects to remain economic in 2017 at current PPA levels. The extension, and potential refundability of credits, would also alleviate the constraints on tax equity, which is a key risk for the solar market over the next two years.

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Credit Suisse believes that the U.S. solar developers would be the main beneficiaries. These would include the companies listed below.

What is interesting is that the solar players were also up Monday on the news that China was extending and increasing its goals for alternative energy and solar power.

SunEdison Inc. (NYSE: SUNE) shares were up over 3% shortly after Tuesday’s opening bell to $20.61, within a 52-week range of $13.09 to $24.35 and a consensus analyst price target of $28.08.

Vivint Solar Inc. (NYSE: VSLR) was up 53 cents, or more than 6%, to $8.79. Vivint has a 52-week range of $7.42 to $18.71 and a consensus analyst price target of $19.80. Keep in mind that Vivint is the most recent IPO of the solar energy patch.

SolarCity Corp. (NASDAQ: SCTY) was up over 1% to $53.36 early Tuesday. Its 52-week range is $45.79 to $88.35, and its consensus analyst price target is still listed as being all the way up at almost $85.

SunPower Corp. (NASDAQ: SPWR) was up about 5% at $27.08, within a 52-week range of $22.75 to $42.07. It has a consensus analyst price target of $39.00.

First Solar Inc. (NASDAQ: FSLR) was up 5% at $47.75 early Tuesday, against a 52-week range of $39.18 to $74.84. It has a consensus analyst price target of $59.00.

Credit Suisse took some direct text from the budget proposal:

The Budget would make permanent-and pay for-important research and clean energy incentives that the Congress routinely extends on a year-to-year basis, including the Research and Experimentation Tax Credit, the Production Tax Credit, and the Investment Tax Credit. It would also reform these incentives to make them simpler and more efficient, for example by creating a single formula for calculating the Research and Experimentation Tax Credit and making the renewable energy Production Tax Credit refundable so innovative, growing firms can fully benefit.

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