How will the IPCC’s latest report impact solar stocks?

North American solar firms are expanding globally as governments in Asia and Europe look to boost their domestic solar power capacity. First Solar has been awarded millions of dollars in incentives from the Indian government, while Canadian Solar and Enphase Energy are capitalising on the EU’s latest drive to end its over-reliance on Chinese solar imports, while meeting the IPCC’s call for climate urgency.

-First Solar and Canadian Solar are making headway in Asian solar markets.

-The latest IPCC report highlights need for urgent response to climate threat.

-Global X Solar ETF offers exposure to First Solar, Canadian Solar and Enphase Energy.

First Solar’s [FSLR] share price tear continues, with the solar panel manufacturer landing a major portion of an incentive scheme aimed at boosting India’s solar production capacity.

First Solar’s share price has gained 39.2% year-to-date, though it is down 1.8% over the past month.

News broke on 28 March that it was one of 11 companies that the Indian government has selected to receive 139.4bn rupees in incentives to increase the country’s domestic solar power capacity fourfold by 2030.

The award, made via India’s Production Linked Incentive program, will see First Solar commission a new facility in Tamil Nadu during the second half of 2023, with an annual nameplate capacity of 3.4 gigawatts.

First Solar is not the only North American solar company making headway in the Asian market. Canadian Solar [CISQ] announced on 7 March that it has commenced operations at three projects in Japan, with a total 42-megawatt (MW) peak.

Enphase Energy and Canadian Solar eye European opportunity

Across Asia and the world, China is currently the dominant player in the solar power supply chain, but some regions are following the US’s example in attempting to boost their domestic capacity.

Europe’s efforts to reduce its reliance on China for solar power stepped up in March, as EU energy commissioner Kadri Simson told the continent’s solar power lobby that switching from fossil fuels to renewables “should not mean replacing one dependency with another”.

In this regard, Simson pointed out that three quarters of the bloc’s solar panel imports originated in China.

The EU has had to wean itself off Russian oil over the past year, and leaders hope that legislation such as the Net Zero Industry Act will boost its energy security while combating climate change, as well as keeping its own industry competitive in the face of the US’s Inflation Reduction Act.

American companies are already boosting their European presence. Last week, Enphase Energy [ENPH] began shipments of its IQ microinverters from its Romanian facility and IQ8 microinverters from centres in France and the Netherlands. Meanwhile, Canadian Solar obtained a favourable environmental impact assessment for six projects totalling 685MW in Spain in early March.

IPCC calls for urgent action

The UN Intergovernmental Panel on Climate Change’s (IPCC) latest report on 20 March painted a grim picture of the world’s efforts to combat climate change to date.

The report, containing research from hundreds of climate scientists and signed off by global governments, suggests that global warming is “more likely than not” to pass the 1.5C threshold specified in the Paris Agreement.

It highlighted that, despite the need to substantially reduce carbon emissions, public and private finance flows for fossil fuels outweighed those for renewable energy.

The report has fuelled pessimism over the achievability of the 1.5C target, with many business leaders—particularly in the oil and gas sector—calling for the target to be scrapped altogether. However, the report’s signatories have agreed that limiting warming to 1.5C is still achievable, but demands unprecedented urgency and action.

Francis Johnson, senior research fellow at the Stockholm Environment Institute and one of the report’s authors, says that, while 1.5C should remain the target, it is “not a magic number” and that “1.6C is still better than 1.7C”.

Funds in focus: Global X Solar ETF

Investors seeking broad exposure to the solar theme alongside concentrated exposure to First Solar can select the Global X Solar ETF [RAYS]. As of 31 March, First Solar is RAYS’s top holding, with 12.42% of net assets. Enphase Energy is the fund’s fifth holding with a 6.16% weighting, while Canadian Solar has a 1.29% weighting.

Significantly, RAYS isn’t limited to North American stocks. Its second- and third-largest holdings at respective weightings of 9.09% and 8.67% in JA Solar Technology [002459.SZ] and Sungrow Power Supply [300274.SZ] reflect China’s current global dominance of the market.

RAYS is up 1.4% year-to-date, but down 6.1% over the past month.

Enphase Energy is down 23.5% year-to-date and down 10.1% over the past month. Canadian Solar has gained 29.2% year-to-date, but has fallen 6.5% over the past month.

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