The proposed Senate bill would phase out tax incentives for solar installations.
The leading providers of solar panels and equipment saw their stock prices plummet after the U.S. Senate’s version of the budget bill was released earlier this week.
The Senate version proposes to phase out the tax incentives for rooftop solar installations, along with incentives for wind energy, by 2028. It follows the House version of the bill which called for tax incentives for solar and wind from the Inflation Reduction Act to be phased out even sooner.
The Senate has not yet voted on the bill, and changes could be made as there is some dissent within the majority Republican caucus. The Senate is looking to get the bill passed by July 4 and then it goes back to the House for a vote.
Meanwhile, solar stocks are plummeting. Enphase Energy (NASDAQ:ENPH), which makes microinverters for solar panels, saw its shares drop 24% on Tuesday to about $35 per share. Another solar inverter maker, SolarEdge Technologies (NASDAQ:SEDG), saw its stock drop 33% to around $16 per share.
First Solar (NASDAQ:FSLR), the leading manufacturer of solar panels in the U.S., saw its stock price plummet 18% on the news to roughly $144 per share. In addition, SunRun (NASDAQ:RUN), which provides solar panels and energy storage systems, watched its stock sink 40% Tuesday to just under $6 per share.
Further, the share price of the Invesco Solar ETF (NYSEARCA:TAN) dropped about 9% to roughly $32 per share, while shares of the Global X Solar ETF (NASDAQ:RAYS) fell 5% to $8.25 per share.
Analyst downgrades
Solar stocks were downgraded by several analysts after the Senate version was released. However, there was some relief that the Senate version was not as draconian as the House version, particularly in extending the phase out until 2028.
RBC Capital lowered the price target for Enphase to $28 per share, from the previous $50 per share target. For First Solar, RBC reduced the target to $188 per share from $230 per share, but maintained its outperform rating.
KeyBanc also lowered its rating for SolarEdge, SunRun, and Enphase to underperform, according to Morningstar.
“While we were optimistic that the Senate version would be more favorable toward renewables, we do not view the draft as enough to alleviate concerns and expect shares to remain pressured given the regulatory uncertainty overhang,” KeyBanc analyst Sophie Karp said in a research note, according to Morningstar.
However, JP Morgan analyst Mark Strouse was slightly more optimistic. While the industry had been hoping for better from the Senate proposal, there could still be changes before its enacted. And even if it stays the same, solar companies “would have strong project visibility through the end of the decade as developers have four years from the start of construction to complete projects and access tax credits,” Strouse said, reported MarketWatch.
Of the stocks that tanked, First Solar would be the one to keep an eye on. It is the leader in its space and the stock price is still very cheap with a P/E of 12 and a forward P/E of 9. While long-term visibility is cloudy, it could be a short-term option at this valuation. But keep an eye on budget developments over the next few weeks.
