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Shares in US renewable energy groups fell on Thursday, as cuts to clean energy tax credits in President Donald Trump’s landmark tax bill proved more aggressive than expected.
The bill, which narrowly passed the Republican-controlled House in the morning, seeks to end clean energy tax credits earlier than planned, undermining a central plank of former president Joe Biden’s Inflation Reduction Act.
The bill will head to the Senate next, where lawmakers may water down its more hardline provisions, but clean energy advocates warn the legislation could still decimate the sector.
Shares in NextEra Energy, the biggest US power group by market capitalisation and the country’s largest developer of renewable energy, closed 6.4 per cent lower. Enphase Energy, which makes technology for solar power systems, batteries and electric vehicles, tumbled 19.6 per cent.
Investors were taken aback by the scale of changes to IRA-era clean energy incentives since the initial draft of the bill was released on May 12. Analysts at Jefferies equity research said that while the Senate would tinker with the House’s proposals, the cuts that Republicans included in the updated text of their budget released on Wednesday were “sledgehammer strikes” and the outcome was “worse than feared”.
The residential solar sector has been hit particularly hard, with the May 12 draft bill cutting a tax credit for homeowners who purchase solar systems. An investment tax credit, known as 48E, was due to be phased out later, but the latest version of the bill expedites the cutting of this subsidy for commercial installations.
Analysts warned green energy stocks probably had further to fall.
“There’s no obvious catalyst or reason to own [US] solar companies any more,” said Manish Kabra, head of US equity strategy at Société Générale. “Fears were already there and we’re realising that one of the focuses of this administration is to remove green subsidies.”
The net asset value of the Invesco Solar exchange traded fund, which is dominated by US stocks, dropped as much as 10 per cent. Shares in Sunrun, which relies heavily on its 48E qualification, closed about 37 per cent lower.
The fossil fuels lobby celebrated passage of the bill, with the American Petroleum Institute saying it would help “restore American energy dominance”.
Investor focus now turns to the Republican-controlled Senate. The upper house has the option of paring back some of the most drastic cuts to clean energy incentives, and at least four moderate senators have expressed support. However, JPMorgan analysts speculated that a “glass half empty” approach to stocks might endure given the failure of friendly House Republicans to rally support.
In a slight win for green energy, tax credits affecting the nuclear sector were exempted from the cuts, while no changes were made to a subsidy related to advanced manufacturing. Shares in Oklo, the small modular reactor company backed by Open AI chief executive Sam Altman, gained 6 per cent.
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