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U.S. solar stocks are tumbling hard on Tuesday after the Senate backed the removal of renewable energy incentives that President Donald Trump proposed in his spending bill last month.
Investors are bailing on solar stocks because the upper chamber’s version of the tax-and-spending bill includes a provision to fully remove renewable energy incentives by 2028.
First Solar (FSLR), Sunrun (RUN), and Enphase (ENPH) are all down at least 20% following the Senate news today.
Significance of Senate’s Decision for Solar Stocks
Renewable energy stocks are scrambling to find a floor this morning since tax incentives under former President Joe Biden’s Inflation Reduction Act (IRA) have been crucial in lowering upfront costs tied to solar installations.
Tax relief and other financial benefits helped stimulate demand and encouraged investment in the solar sector that fostered its rapid growth.
But now that the Senate has approved a gradual decline in solar incentives to completely eliminate them over the next three years, the profitability of solar projects has been called into question.
Without these subsidies, solar power becomes less competitive versus traditional energy sources, which could potentially lead to a significant decline in consumer adoption.
Is It Worth Buying the Dip in Solar Stocks on Tuesday?
Investors should practice caution in buying the dip in solar stocks today because the elimination of tax credits creates significant long-term uncertainty for the industry.
Reduced revenue and slower growth are reasonable expectations for renewable energy companies following the Senate news as tax incentives have actually been fundamental to economic viability of solar projects.
While some would argue that renewable energy stocks are pricing in a lot of the bad news already, the policy change is not particularly likely to prove a temporary blip since it fundamentally shifts the operating environment for the entire industry.
Therefore, until a clear path to sustainable growth without remarkable federal subsidies emerges, investing in solar stocks may be akin to catching a falling knife with no clear bottom in sight.
