The solar stocks took a significant hit this week due to the political uncertainty surrounding the upcoming elections. With Donald Trump gaining ground in the polls and the Republican Party backing him after a recent assassination attempt, the renewable energy sector is facing challenges. The benchmark Invesco Solar ETF (TAN) and the iShares Global Clean Energy ETF (ICLN) have experienced a 6.2% and 4.6% decline, respectively. First Solar, a U.S. heavyweight, has seen an 8.4% drop this week and an 18.6% decrease over the past month.
Impact of Potential Policy Changes
Renewable energy investors are apprehensive about the possibility of Republicans winning the White House and Congress in November. If the Inflation Reduction Act, passed by Democrats in 2022, is dismantled, tax benefits that have fueled the growth of renewable energy could be at risk. Piper Sandler and Wolfe Research predict a 70% chance of Trump winning the presidential election and a 50% probability of Republicans securing a congressional majority.
Stocks like Enphase, SolarEdge, SunPower, Sunnova, and Sunrun are among those that would face severe impacts if the IRA is weakened or repealed. Enphase saw a 9.5% decline, SolarEdge dropped 15.5%, SunPower lost 43.9%, Sunnova is down 6.6%, and Sunrun shed less than 1% this week. The utility-scale solar sector, including companies like Array Technologies and Nextracker, would also be significantly affected.
Despite the challenges, there may be buying opportunities in the solar sector. Companies like First Solar, which has investments in manufacturing plants in states traditionally voting for the GOP, could benefit from a potential Republican victory. Baird values First Solar at $307 per share, suggesting a 44% upside from its current price. Additionally, as a domestic manufacturer, First Solar could stand to gain if a U.S.-China trade war escalates under a Trump administration.
While the possibility of a total repeal of the IRA may be slim, solar and clean energy stocks are likely to remain volatile in the lead up to and post-election. Political headlines and uncertainties will continue to impact the sector. It is essential for investors to stay informed and monitor the political landscape closely for any potential policy changes that could affect the renewable energy industry.