Eighteen months later, the US Senate voted to pass the $740 billion inflation reduction Act (Inflation Reduction Act), which covers climate change, health insurance, tax reform and other areas. It is worth noting that the climate investment bill, which is worth $369 billion, is designed to boost the US climate and clean energy program so that the US can meet its goal of reducing carbon emissions by 40 per cent by 2030.

It is reported that the bill is the largest climate investment bill in US history, and it mainly covers five major aspects, of which the second part of the bill is highly valued by the market, focusing on clean energy manufacturing. Many manufacturing segments, including solar panels, wind turbines, batteries, electric cars and key minerals.

First, under many positive conditions, the solar energy sector of the US stock market is booming.

All three major clean energy exchange traded funds (ETF) have risen sharply, aided by the landmark climate investment bill. The rally began at the end of July, when Senator Joe Manchin gave in and announced his support for the legislation. During the period from July 25 to August 11, iShares Global Clean Energy ETF (ICLN.US), First Trust Nasdaq Clean Edge Green ETF (QCLN.US) and Invesco Solar ETF (TAN.US) rose 18.73%, 19.94% and 21.58%, respectively, with Invesco Solar ETF, which is dominated by solar stocks, leading the way.

Zhitong Finance has previously pointed out in an article that solar stocks have also outperformed the market so far this year, in addition to the well-known outstanding performance of energy stocks. As of press time, Invesco Solar ETF is up 14.24% so far this year, while the S & P 500 is down 11.73% so far this year.

In the context of the accelerated global transition to clean energy, solar energy is one of the most important feasible technologies to get rid of dependence on fossil fuel sources, and global photovoltaic installations are expected to continue to grow strongly. This will have a positive impact on the shares of solar companies, including solar panel manufacturers, system installers and component suppliers.

In addition, the adjustment of the photovoltaic tariff policy in June, coupled with such a large-scale climate investment bill, will help the prospects of the US solar industry, as well as significant positive for solar stocks.

According to the data, the largest share of positions in Invesco Solar ETF is Enphase Energy (ENPH.US), which is also the largest share of iShares Global Clean Energy ETF and First Trust Nasdaq Clean Edge Green ETF, two clean energy ETF stocks.

Enphase Energy has risen 60.11 per cent so far this year, ranking second among S & P 500 stocks, after OXY.US, and outperforming many energy stocks focused on oil and gas, such as Exxon Mobil Corp, HES.US and Chevron Corp. This makes one wonder why Enphase Energy has performed so well among so many energy and solar stocks.

Second, the competitive advantage is obvious! Enphase Energy is ready to go.

$Enphase Energy (ENPH.US) $Mainly for the solar photovoltaic industry design, development, manufacturing and sales of micro inverter systems. With the significant advantages of its proprietary micro inverter technology over its counterparts, as well as very high cost competitiveness, the company has a unique advantage in the solar energy industry. In the face of the development tide of the solar energy industry, Enphase Energy still has a lot of room for growth.

1. The demand for installation will break out and the solar energy industry will improve.

The cost of the photovoltaic industry has fallen sharply over the past 20 years, making solar energy one of the cheapest sources of energy. The cost per kilowatt-hour of photovoltaic power fell 85 per cent from $0.381 to $0.057 between 2010 and 2020, according to the International Renewable Energy Agency (IRENA). At the same time, the price trend of other fossil fuels such as natural gas over the past year reflects its instability and unpredictability, and stability may be one of the biggest advantages of sustainable energy sources such as solar energy.

Current trends in the clean energy market indicate that the demand for solar photovoltaic systems will surge. Wood Mackenzie, the most authoritative consultancy in the global energy and metals industry, predicts that the new installed capacity of photovoltaic will increase by 25% year on year to 197GW in 2022, and the cumulative installed capacity will exceed that of 1000GW. The agency also expects global photovoltaic capacity to grow at an average compound annual rate of 8% over the next decade, and total global installed capacity will reach 3500GW by 2031. For the U. S. solar market, the climate investment bill will further boost its photovoltaic capacity.

2. Enphase Energy's market share of proprietary micro inverter technology is up to 72%.

The solar panel industry is about to undergo a series of disruptive technological innovations. However, among the many innovations already under way, it is difficult for solar panel makers to know in advance which technologies will upend the market and which will be abandoned halfway, and companies that make the wrong choices could be hit hard or even go bankrupt.

Different from the highly complex solar panel technology innovation, the micro inverter technology is relatively simple and direct. Not only is the technology unlikely to be subverted in the coming decades, but it is also likely that, like the headlights of the first car in the 20th century, miniature inverters will become a key part of every newly installed solar panel. Enphase Energy invented the miniature inverter and has a place in the field of technology, which gives the company a huge advantage over its competitors.

The inverter is the key equipment in the solar photovoltaic system. The solar photovoltaic cell converts the light energy into direct current, and then inverts the DC power into AC electricity through the inverter. The main innovation of Enphase Energy is that each photovoltaic module is equipped with a miniature inverter module with AC / DC conversion function and maximum power point tracking function, which converts the electricity generated by the photovoltaic module directly into AC power for AC load use or transmission to the power grid. By optimizing the output power of each module, the overall output power is maximized. Even if some panels are affected by shadows, dust cover, etc., the inverter optimizer can still track the best local MPP (maximum power point) and recover more than 57% of the lost power. Therefore, compared with the most used centralized inverters in photovoltaic systems on the market, micro inverters can significantly improve the efficiency of solar photovoltaic cells.

In addition, in the home market, the micro inverter also allows users to transfer the converted electricity from the power grid to the household battery. This provides backup power for users and ensures energy independence, and users using micro-inverters can be protected from catastrophic power grid failures. In terms of cost, because each module of the micro inverter has the monitoring function, it can reduce the maintenance cost of the photovoltaic system, and the cost of the micro inverter is equal to or even lower than that of the centralized inverter.

Enphase Energy became the first company to introduce its proprietary micro inverter technology to the solar industry in 2008. Over the next two years, Enphase Energy successfully installed miniature inverters on 13 per cent of residential photovoltaic systems in the US, rising to 48 per cent by 2020. More importantly, Enphase Energy successfully achieved 72% market share in the global micro inverter market.

Enphase Energy has successfully surpassed its nearest competitor, SolarEdge (SEDG.US), in just a few years. In January 2019, Enphase Energy had a 24 per cent share of the inverter market, while SolarEdge had a market share of 56 per cent; by December 2020, Enphase Energy's market share had risen to 48 per cent, higher than SolarEdge's 40 per cent. If this trend continues, which is likely to happen, Enphase Energy's market share will rise to more than 50 per cent.

3. Strong profitability, frequently exceeding expectations

Enphase Energy's performance always brings surprises. Second-quarter results released at the end of July showed Enphase Energy's revenue of $530 million, up 68 per cent year-on-year and 20 per cent month-on-month. Adjusted diluted earnings per share were $1.07, 29% higher than market expectations. It is worth mentioning that this is not uncommon. In the past four quarters, Enphase Energy's earnings per share have significantly exceeded market expectations.

In addition, Enphase Energy's gross profit margin reached 41.3% in the second quarter, which has long outperformed other solar companies, and has been the highest among its peers for the past three years. More importantly, Enphase Energy can turn its high gross margins into profits, which many other solar companies have not yet done.

Due to the recent rise in share prices, Enphase Energy is trading at a very high price-to-earnings ratio of 198.48 times. High price-to-earnings ratios are not uncommon for high-tech companies that dominate fast-growing markets. Tesla, Inc. had a price-to-earnings ratio of 1102.61 times at the end of 2020, and Tesla, Inc. 's earnings per share were negative from 2011 to the second quarter of 2020. By contrast, Enphase Energy's earnings per share are not only positive, but have also risen steadily over the past four quarters.

4. Analyst rating & risk

Wall Street analysts have an average "buy" rating on Enphase Energy, with 15 out of 30 analysts given a "buy" rating and 7 a "buy" rating, while the average target price is $266.36.

For investors, the price-to-earnings ratio of Enphase Energy is unusually high, which is one of the factors to be considered. The stock's share price has soared recently, and in addition to the better-than-expected good news in the second quarter, the climate investment bill is also a driver, and a rapid rise in the share price could lead to a pullback before continuing to rise. Another imminent threat is that Enphase Energy may fall along with the U. S. stock market in the near future and fall into the market storm.