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A day in the sun: Solar's revival sends stocks on a tear

Steve Bronstein | Getty Images

Even as the U.S. churns out more fossil fuels, evidence abounds that alternative energy in general—and solar in particular—is staging a comeback of sorts. And the halo effect has spread to solar stocks.

Observers credit an increase in solar capacity, falling photovoltaic (PV) costs and the extension of tax credits for renewable energy for the sector's revival. Rather than mounting a competitive threat to oil and gas, solar energy is instead carving a niche in creating electricity, experts say.

Solar power has "the ability to create very local opportunities ... where you don't have to be interconnected to a whole bunch of infrastructure like crude," said Richard Hastings, a macro strategist at Global Hunter Securities. "Wind and solar have found their way into the major fuel story for electric power generation."

According to the Energy Information Administration, renewable power for electric generation surged 23 percent over the last year, becoming the second biggest source for new generator capacity. At the same time, natural gas—rapidly becoming the dominant source for generating electricity—appeared to plateau.

(Read more: Cramer: Don't worry, be happy, buy this stock?)

Solar industry observers say a big part of solar's resurgence is the permanence of the federal government's Investment Tax Credit (ITC). The Solar Energy Industries Association calls the credit "one of the most important federal policy mechanisms to support" solar initiatives in the U.S.

(Read more: Power play: Utilities want solar users to pay up)

The solar boom has created a wave of investor enthusiasm for companies like SolarCity, which has more than tripled in value over the last year.

Other booming solar stocks include PowerSecure, SunPower and Solazyme. Last week, research firm RW Baird called solar stocks "our favorite subsector of 2014."

More emphasis on energy efficiency will lead to more upgrades in power grids, and more demand in both domestic and international markets, Baird added.

Utility use stalls as retail solar soars

Nadav Enbar, senior project manager in power delivery utilization at the Electric Power Research Institute, said that while utilities have played a big role in feeding solar's comeback, growth there is slowing while retail and commercial adoption rates are growing.

"End users like residential and commercial businesses are recognizing that in some areas of the country, with net metering and federal subsidies, [solar power] offers a compelling story for a favorable rate of return," Enbar said.

Demand from electric power companies has been "instrumental in procuring a large amount of solar," he said. "Much of that demand has been driven by [environmental] mandates, and many of those are now being met."

According to EPRI data, solar is more expensive and less flexible than natural gas, which puts limits on its wider use. Still, the ITC has led to a surge in solar power use nationwide.

—By CNBC's Javier E. David. Follow him on Twitter @TeflonGeek

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