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Solar industry supply chains have fallen victim to persistent disruptions and higher costs in recent months, which have contributed to a broader sell off across the renewable energy sector. A proposed policy that could make solar power generation in California more expensive for consumers, alongside rising interest rates, are also playing a part in dragging down solar stocks.

Despite recent bearish sentiment across the market, there are several tailwinds that could spark a solar industry bounce back this year. Solar power is forecast to account for nearly half of all electricity generation in 2022. Meanwhile, Wood Mackenzie has predicted supply disruptions will ease throughout the year. Further, California’s proposed solar laws are unlikely to pass as written and investment into the industry remains on an upward trajectory.

Related ETF & Stocks: Invesco Solar ETF (TAN)

Headwinds Plaguing Solar Industry as Renewables Slide

Supply chain disruptions hampering economies across the globe have certainly taken a toll on the solar industry as raw material shortages and higher costs proved to stick around over the last few months.

According to Solar Industry Mag, trade policy uncertainty in Asian countries including Malaysia, Thailand and Vietnam have created significant shipping disruptions for importers. Petitions for anti-dumping and countervailing duties on solar cells were recently dismissed, which have sparked further logistical challenges and subsequent price increases.

Near-term solar deployment has been strained by the fact costs have risen across all market segments, writes the Solar Energy Industries Association. A major contributor to rising costs has been the price of polysilicon through 2021, a key raw material used to make photovoltaic cells in solar panels.

Polysilicon prices have more than tripled since bottlenecks began, rising over 200% in 2021 and slowing the pace of renewables projects.

Further, some investors have been spooked by new rules proposed by the California Public Utilities Commission (CPUC) which essentially reduces payments granted to solar customers for the excess solar power they generate. This incentive program has been an integral part of the renewable energy transition in California, in which there are more than 1.3 million solar customers.

Per CNBC, solar companies and advocacy groups have sounded the alarm, saying reduced subsidies could significantly dampen the growth of solar energy, as it not only reduces payments but adds additional monthly charges for customers. The CPUC holds the stance this new policy modernizes California’s rooftop solar program and allows lower income customers to access to clean energy.

Similarly, on a macroeconomic front, the looming threat of rising interest rates have taken a toll on high growth industries, especially capital-intensive solar stocks. reports that higher interest rates can put pressure on renewable energy projects due to the amount of capital that is often funded with debt, leading some investors to shun growth companies in favor of defensive value plays.

However, most, if not all of these headwinds have the potential to be temporary setbacks and could turn around at the start of the new year.

Solar Sell-Off Looks Overdone as Difficulties Expected to Subside

Despite recent troubles, the solar slump appears overdone, and the sector could be primed to stage a comeback in the first half of 2022.

Wood Mackenzie recently predicted that the supply chain problems that drove up the cost of solar power equipment last year will ease throughout 2022.

As previously mentioned, polysilicon prices surged last year and were a key factor in slowing new utility scale solar projects. Fortunately, Bloomberg reports…

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