Solar and clean energy stocks sold off heavily on Wednesday after Donald Trump defeated Kamala Harris to clinch leadership of the White House. Trump’s victory has renewed worries among traders that the incoming administration will weaken support for the solar industry, as well as other forms of low-carbon energy.
Sunnova Energy (NASDAQ:NOVA) -22%, JinkoSolar (NYSE:JKS) -16% and SolarEdge Technologies (NASDAQ:SEDG) -15% led the bloodbath as traders digested Trump’s historic win and re-election as the 47th President of the U.S. Other major losers were First Solar (NASDAQ:FSLR) -14%, Enphase Energy (NASDAQ:ENPH) -13%, Array Technologies (NASDAQ:ARRY) -12.6%, Maxeon Solar Technologies (NASDAQ:MAXN) -12.4%, Fluence Energy (NASDAQ:FLNC) -12% and Daqo New Energy (NYSE:DQ) -11%. Meanwhile, the iShares Global Clean Energy ETF (NASDAQ:ICLN), the world’s largest green energy ETF and a catch-all bet on clean energy, tanked nearly 10% on the day.
Trump has never hidden his disdain for clean energy (especially ‘windmills’). He has repeatedly lambasted the historic Inflation Reduction Act (IRA), describing it as the “biggest tax hike in history”. Trump has pledged to rescind any “unspent” funds under the IRA should he ascend to the Oval Office, again, “To further defeat inflation, my plan will terminate the Green New Deal, which I call the Green New Scam,” the former president said before the Economic Club of New York in September.
Two years ago, the Biden administration signed the IRA, allowing hundreds of renewable energy companies to benefit from $369 billion in tax breaks and subsidies for clean energy. In the previous year, the Biden administration passed the Infrastructure Investment and Jobs Act (IIJA), with the act authorizing $1.2 trillion in spending for transportation and infrastructure; $43 billion (not including loans and tax incentives) in flexible spending could be used for battery manufacturing, retooling auto industry facilities, retraining and rehiring existing auto workers and grid updates while more than $7.5 billion will support the buildout of EV infrastructure.
Recently, Politico provided estimates that companies have announced plans to build or expand an estimated 555 manufacturing facilities thanks to generous IRA benefits of the IRA. But here’s the kicker: less than half of the 230 facilities that were slated to commence by the end of 2024 will beat the deadline, meaning that over 60% of IRA investments will be at the mercy of the Trump administration. With the GOP set to take both the Senate and the House, a unified Congress could spell doom for Biden’s signature bill.
The IRA has so far survived Republican-led attempts to repeal major parts, but could be under serious threat under a new Trump administration. Trump may lack the power to unilaterally roll back the climate law, but certainly could make its "implementation more difficult", as Shannon Rinehart, portfolio manager at Threadneedle, has pointed out. His administration could hobble the climate law through executive action by revising treasury department rules yet to be finalized, holding back some of its loans and grants and/or tightening limits on tax credits.
“Some parts of the IRA will receive more pushback from Republicans than others. We’re trying to steer clear of those parts,” Chris Berkouwer, portfolio manager at Robeco, reported. According to Berkouwer, investments aimed at improving the grid infrastructure are likely to receive bipartisan support; however, whereas Democrats might want the grid strengthened to cater for the rollout of more renewables, Republicans are likely to favor the renewed infrastructure serving coal and gas power generation utilities.
Up until recently, investments dedicated to the booming electric vehicle sector appeared to be in Trump’s crosshairs. Last year at a Detroit rally, Trump attacked the sector, claiming that EVs are “too expensive” and “don’t go far enough”. He, however, appears to have softened his anti-EV stance after cozying up to Tesla Inc. (NASDAQ:TSLA) CEO, Elon Musk. The auto industry has already announced more than $100 billion in EV investments, creating more than 100,000 American jobs. TSLA has jumped nearly 20% since Wednesday, with Bank of America saying Trump's plan to relax environmental rules will likely provide an incentive to other automakers to slow down their EV ramps even further.
That said, it’s likely that Trump might face some pushback from his own party if he attempts to do away with the IRA: in September, 18 Republicans in the House of Representatives signed a letter to Speaker Mike Johnson, asking him not to work towards “prematurely repealing energy tax credits” supporting new IRA investments--the majority of which have gone to Republican states.’Red States have actually benefited more from the IRA than blue states: A 2022 report by Climate Central revealed that Iowa and Oklahoma, some of the ‘reddest’ states with Republican governors and majority Republican state legislatures, lead the nation in wind power production; California and Florida are the largest producers of solar power while Texas is a leader in both solar and wind power. The report says that state and federal incentives are a big reason for the rapid growth of renewable energy generation.
By Alex Kimani for Oilprice.com
