The solar industry has been facing a challenging week as solar stocks have taken a hit due to the political landscape. With Donald Trump gaining ground in the polls and the Republican Party rallying around him post an assassination attempt, the future of the renewable energy sector seems uncertain. This article examines the recent developments in the political arena and their potential impact on solar stocks.
Renewable energy investors are concerned about the possibility of Republicans winning the White House and Congress in November. The benchmark Invesco Solar ETF (TAN) and the iShares Global Clean Energy ETF (ICLN) have seen declines of 6.2% and 4.6%, respectively, this week. U.S. heavyweight First Solar has lost 8.4% in a week and 18.6% over the past month due to political uncertainty and a failed rally on artificial intelligence demand.
The potential repeal of the Inflation Reduction Act (IRA), which has provided tax benefits for renewable energy growth, could have significant repercussions for solar stocks. Utility-scale solar companies like First Solar, Array Technologies, and Nextracker could face earnings declines if the production tax credit is eliminated. Residential solar stocks, including Enphase, Sunnova, Sunrun, SolarEdge, and SunPower, are also at risk of severe impacts if the IRA is weakened or repealed.
Under a full repeal of the IRA, the investment tax credit supporting residential solar could decline to 10%, making many markets uneconomic. This would lead to a significant pullback in residential solar activity. Even under a partial repeal scenario, with supply-side tax credits maintained, the residential space could still face challenges, according to industry analysts.
Despite the political uncertainties surrounding solar stocks, some analysts see a buying opportunity in companies like First Solar. The investments made by solar companies in Republican states could shield them from potential IRA repeal. First Solar, in particular, has manufacturing plants in states like Ohio, Alabama, and Louisiana, which could benefit the company in case of increased trade tensions with China.
The solar industry is facing a volatile period with the upcoming election and the potential for significant legislative changes. While solar stocks have seen a decline due to political uncertainty, some analysts believe that there could be buying opportunities in certain companies. It will be essential for investors to closely monitor the political developments and their impact on the renewable energy sector in the coming months.