The recent events in the political landscape, with Donald Trump gaining ground in the polls and the Republican Party rallying around him, have had a significant impact on the solar energy sector. As a result of the shocking assassination attempt on Trump on July 13th, the Democratic Party has been left in disarray, especially after President Joe Biden’s weak debate performance in June. This has led to growing pressure within the party for Biden to drop out of the race, with many Democrats fearing the repercussions of a potential loss in the upcoming election.
The uncertainty surrounding the political climate in the U.S. has caused solar stocks to take a hit in the market. As a result, the benchmark Invesco Solar ETF (TAN) and the iShares Global Clean Energy ETF (ICLN) have experienced a decline of 6.2% and 4.6%, respectively. Additionally, U.S. heavyweight First Solar has lost 8.4% this week and 18.6% over the past month. The company’s recent rally on artificial intelligence demand has come to a halt, and the political uncertainty in the U.S. is weighing heavily on the stock.
One of the key concerns for renewable energy investors is the possibility of a Republican clean sweep in the upcoming election, which could lead to the dismantling of the Inflation Reduction Act. If the IRA is repealed, it could have a significant impact on the solar energy industry. Tax benefits provided by the IRA have accelerated the growth of renewable energy and brought manufacturing back to the U.S. However, if these tax benefits are lost, utility-scale solar could become less competitive, resulting in an increase in the levelized cost of solar energy by more than $10 per megawatt-hour.
Several solar companies, including First Solar, Array Technologies, Nextracker, Enphase, Sunnova, Sunrun, SolarEdge, and SunPower, could face severe consequences if the IRA is weakened or entirely repealed by Republicans. The elimination of production tax credits and investment tax credits could greatly affect these companies, with potential reductions in earnings per share and stock prices. Under a full repeal of the IRA, the investment tax credit that supports residential solar would decline to 10%, making many markets uneconomic and triggering a significant reset in activity across the U.S.
Despite the challenges and uncertainties facing the solar energy sector, there are potential buying opportunities for investors. While the politics of repealing the IRA may prove complicated, some solar companies may be shielded from the potential impacts due to their investments in Republican states. For example, First Solar, which has manufacturing plants in Ohio, Alabama, and Louisiana, could benefit from its domestic manufacturing operations. Some analysts have identified First Solar as a buying opportunity, with the potential for significant upside in the stock price if the company’s value is realized.
The rising political tensions and uncertainties in the U.S. have had a significant impact on solar stocks, with the potential for further volatility leading up to and following the election. While the threat of a Republican clean sweep and the repeal of the Inflation Reduction Act loom large over the solar energy sector, there are also opportunities for savvy investors to capitalize on buying opportunities in companies with strong fundamentals and strategic investments. As the political landscape continues to evolve, it will be crucial for investors to stay informed, adapt to changing market conditions, and carefully assess the risks and opportunities in the solar energy sector.