The news was about as bad as it could get for renewable energy stocks this week as the U.S. House of Representatives early Thursday passed a bill that will repeal some of the most important subsidies for the industry if it becomes law.
Investors assumed the worst and sold off nearly every company related to EVs or renewable energy. Enphase Energy (NASDAQ: ENPH) fell as much as 25.4% this week, Bloom Energy (NYSE: BE) dropped 11.2%, AES (NYSE: AES) fell 21.9%, and NextEra Energy (NYSE: NEE) was off 12%. The stocks had bounced off their lows in Friday trading, but are still down big for the week.
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The huge hit to renewable energy
As has been promised for months, Congress and the White House are going after the renewable energy industry hard, targeting a lot of the subsidies that drove the industry’s growth over the last few years.
In The One, Big, Beautiful Bill that’s passed the House, the $7,500 tax credit for new electric vehicles is gone for all automakers who have sold over 200,000 EVs, and so is the $4,000 tax credit for buying a used EV. To make matters worse, EV owners would have a new annual tax of $250 and hybrid owners would be charged $100 to make up for taxes normally included in gasoline sales.
Tax credits for solar, wind, and energy storage would also be cut, a key piece of financing projects large and small. The bill now heads to the Senate.
An impact on everyone in renewable energy
The loss of renewable energy tax credits could be the most impactful on the energy industry overall. Wind and solar accounted for nearly all of the new power generation in the U.S. last year, and many projects would be uneconomical without the 30% tax credit that the bill does away with.
That would impact component suppliers like Enphase and Bloom Energy, who sell to developers of projects. But it would also impact utilities like AES and NextEra Energy, which are counting on renewable energy projects to grow.
If projects already in the pipeline are suddenly uneconomical, it could cause the industry to come to a screeching halt. And with bankruptcies already mounting, that could be terrible for these stocks.
Where does renewable energy go from here?
The industry has been through ups and downs before. But this time, there have been billions of dollars invested in new manufacturing plants in the U.S. that were made possible by direct subsidies for plants and indirect financing assistance for renewable energy projects.
If this bill passes the Senate and the president signs it into law, it would undermine the economics of the entire industry and could result in a lot of companies going out of business. That’s a very real fear for investors today.
Utilities like NextEra Energy and AES aren’t going to go under, but they’ve invested heavily in being leaders in renewable energy, and this may undermine those growth plans. Enphase and Bloom, on the other hand, are facing an existential crisis in the U.S.
I’m not buying renewable energy stocks today, and think it will be a rough time for the industry if this bill does become law.
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy.
