Why Enphase Bounced Back Big This Week

Shares of solar inverter leader Enphase Energy (NASDAQ: ENPH) rallied 20% this week through Thursday trading as of 2:20 p.m. ET, according to data from S&P Global Market Intelligence.

Enphase is a market leader in solar microinverters, which convert DC electricity produced by solar panels into AC electricity that can be used by home appliances.

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Enphase, like all other U.S.-related rooftop solar companies, has been decimated this year following the passage of the new budget bill by the Republican-controlled House of Representatives in May, which rapidly ended the rooftop solar credit.

However, it appears pushback from industry players on key senators may be having an effect as the Senate considers its version.

Senator Cramer: Rooftop solar tax credits being "discussed"

This week, North Dakota Senator Kevin Cramer told reporters that Senate Republicans are considering restoring the rooftop solar credit in the Senate's version of the One, Big, Beautiful Bill, or at least phasing out the credit more gradually. The rooftop credits were extended into the 2030s by the 2022 Inflation Reduction Act, passed under the Biden administration.

Back in May, the House of Representatives passed its version of the bill, which eliminated the 30% tax credit for rooftop solar buyers this year, as well as the credit for companies that lease solar panels to residential customers. The abrupt rescission of the tax break could have severe consequences for the rooftop solar industry. Every stock affiliated with the sector plunged after the bill was passed.

However, as the Senate considers its own version of the bill, Senator Cramer told reporters that the committee is making a slate of changes to the renewable energy tax credits, likely delaying their phaseout schedules and easing the burden on the industry. Cramer also noted specifically, "lawmakers are also discussing changes for rooftop solar credits."

Since the House version was just about the worst possible version of the bill for the rooftop solar industry, any "changes" are likely to be positive.

Image source: Getty Images.

But Enphase and peers aren't out of the woods

The rooftop solar industry was already in trouble prior to the One, Big, Beautiful Bill passing the House. The post-pandemic surge in inflation and interest rates decimated demand, as rooftop solar is often leased or financed.

Even after a slight recovery relative to last year, Enphase's revenues remain far below their past peak. And while profitable, just about all of Enphase's profitability comes from the tax benefits it receives as a solar company.

Even if the rooftop solar credits were extended relative to the House bill, they are still likely to phase out much quicker than in the Inflation Reduction Act. Therefore, investors looking to bottom-fish in this sector are probably better off letting the dust settle on the legislation before betting on a turnaround.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy.