Analysts at Wells Fargo have expressed confidence that concerns about a potential selloff in the solar sector due to a Trump presidency and Republican sweep are exaggerated. While there is some speculation that certain tax credits under the Inflation Reduction Act (IRA) could be repealed, Wells Fargo believes that this outcome is unlikely.
In a recent note, Wells Fargo examined the potential implications of a Trump presidency and Republican control on the solar industry, specifically focusing on the future of solar tax credits.
The IRA has been instrumental in providing incentives for the solar industry, particularly through the 45X advanced manufacturing credits and investment tax credits (ITCs). Despite fears of these credits being repealed under a Trump administration, Wells Fargo suggests that the situation may not be as dire as anticipated.
Key tax credits for the solar industry under the IRA include the 45X advanced manufacturing credit and ITCs. The 45X credits aim to stimulate solar equipment production in the U.S., while ITCs provide a base discount of 30% on solar installations with additional benefits. The future of ITCs is uncertain compared to the more widely supported 45X credits.
While Trump and his VP nominee JD Vance have shown support for fossil fuels and opposition to renewable subsidies, Wells Fargo argues that maintaining ITCs is crucial for attracting manufacturing to the U.S. Eliminating ITCs could hinder future investment in the solar industry and potentially widen China’s lead in solar technology.
Furthermore, repealing ITCs could impact companies’ plans to establish new solar manufacturing plants in the U.S., undermining reshoring initiatives. This, coupled with strong lobbying efforts from the solar industry, suggests that the solar sector may not face significant job losses despite potential policy changes.
Wells Fargo remains optimistic about the outlook for First Solar, Inc. (NASDAQ: FSLR), even in the event of ITC repeal. Analysts believe that the current market reaction to FSLR is exaggerated and that the company’s stock price discounts future bookings too harshly.
Overall, the fate of solar tax credits under a potential Trump presidency remains uncertain. While the elimination of ITCs could slow down solar development in the U.S., companies and utilities with decarbonization goals are expected to continue their solar projects, potentially at higher costs to offset the impact of reduced tax credits.