Back in early April, solar stocks took a nosedive after House Republicans passed their own version of a tax bill. As it stands, this legislation removes substantial, non-negotiable funding for clean energy credits. The new legislation phases out investment and electricity production credits for renewable energy installations. This provision goes into effect 60 days after the law is signed, raising alarm bells among many industry leaders about the long-term outlook of solar energy in the United States.
As a result, First Solar’s shares fell modestly by 1%, since the bill mostly spared manufacturing tax credits. Unfortunately, this relief was merely a drop in the bucket that failed to address more drastic issues plaguing the industry. The sell-off in Array Technologies was particularly acute, with the stock plunging as much as 14%. Strangely enough, Nextracker’s stock dropped 5% after the bill passed. The market sentiment was unambiguously jittery. Investors were concerned about the long-term viability of the tax bill’s impact on solar energy projects.
As written, the legislation explicitly requires clean energy facilities to be operational by December 31, 2028. Beyond that date, these facilities will lose eligibility for both the increased investment credits and electricity production credits. These credits have been instrumental in leading the fast-paced growth of utility-scale solar projects nationwide. Leading industry analysts are estimating that the loss of these important incentives will cut in half future growth and investment in clean energy.
Guggenheim analyst Joseph Osha voiced specific concern over firms such as Sunrun, which are heavily dependent on the now-terminated credits. “It would be disastrous to our business model,” he said of the bill. Today, the firm has to look to these financial incentives to simply keep the company afloat. Here are some key revelations in Osha’s commentary that are critically important for our solar sector. Approximately 70% of the rooftop solar industry today operates on lease agreements pegged to these credit systems.
Even with that uncertainty, First Solar continues to be insulated, due to its manufacturing subsidies. These tax breaks appear to have escaped the bill’s changes. First, the overall climate for solar energy businesses is changing. Analysts are watching closely to see how this sizeable legislative change will shape new market dynamics and investment strategies in the years ahead.
The clean energy sector is riding a historic wave of change. By July 31, 2024, the Double Black Diamond Solar Farm outside of Waverly, south of Springfield, Illinois, will eclipse it to then be the largest solar farm east of the Mississippi River. This exciting project serves as a reminder of the opportunities that remain for solar to grow despite great legislative efforts to the contrary.