By Avi Salzman

Investors knew that President Donald Trump's tax and spending bill would be bad for clean energy. Subsidies for projects like solar and wind farms were bound to be gutted to pay for tax cuts. But the bill that passed the House of Representatives on Thursday was worse than most of them expected.

There's a very gloomy future ahead in some areas if the bill isn't changed dramatically in the Senate.

"This bill is going to be devastating to the industry if it's passed by the Senate," said Heather Cooper, a lawyer at McDermott Will & Emery who works with clean energy companies. "It takes the tax credits that have been in the code for decades, and that were extended and expanded by the Inflation Reduction Act, and it essentially repeals pretty much all of those incentives almost immediately for almost all types of projects."

Cooper said her clients were "jaw-dropped and dumbfounded that this went through."

"This is a highly robust industry with hundreds of thousands of workers and employees," she said. A Princeton University analysis found that the bill almost entirely repeals the Inflation Reduction Act, which would jeopardize more than $500 billion of already-announced clean energy manufacturing projects.

Cooper's clients are hopeful that the Senate will change the bill significantly, but she's less optimistic.

Certain clean energy industries would get hit harder than others. The worst-hit areas appear to be rooftop solar and electric vehicles, which would quickly lose financial support that they had counted on for years. Areas that appear to have survived with less damage include biofuels, nuclear energy, and carbon capture. But all of those industries have their own problems beyond the bill.

Rooftop solar

The bill removes a rooftop solar tax credit that allowed homeowners to take a credit worth 30% of the value of the project. It also limits how companies that lease solar panels to consumers can claim tax credits -- an unexpected change that would have a particularly dramatic effect on SunRun, the leader in that industry. It also forbids companies from selling the tax credits to other buyers, taking away a mechanism that had greased the wheels of the industry.

SunRun stock fell 37% on Thursday. BMO Markets analyst Ameet Thakkar downgraded SunRun's shares to Underperform and predicted that there will be "limited political will to claw back residential credits in any Senate version." Sunnova, another company that leases solar panels to customers, warned investors earlier this year that there's a chance it will not be able to stay in business -- even before this bill was finalized.

Electric vehicles

Most kinds of EVs will lose access to $7,500 tax credits that will make them less price-competitive against gasoline-powered cars. The bill would also add new fees to buyers of certain low-emission vehicles, adding charges of $250 a year for electric vehicles and $100 for hybrids. The EV boom had already begun to slow, but the new costs and loss of tax breaks will almost certainly slow sales further. Tesla may weather the changes better than peers who have a smaller customer base, but it could still be hurt.

Utility-scale solar

Utilities install large arrays of solar panels to generate electricity. The bill will quickly remove the tax credits they receive for installing them, making them less cost-competitive with fossil-fuel-powered generators, like natural gas plants. Clean energy projects would have to start up within 60 days of passage of the bill to still be eligible.

Cooper said her clients who install panels are in a rush to get equipment and get projects started.

"I suspect every module manufacturer has gotten 100 phone calls today," she said. "There's gonna be a lot of activity as people scramble to engage in activities in the next 60-something days."

The changes could have an impact on big utility-scale installers like NextEra Energy and AES, whose stocks fell sharply Thursday. Jefferies analyst Julien Dumoulin-Smith downgraded AES stock to Underperform on Tuesday, citing its "difficult path forward".

Clean energy manufacturing

The bill was mostly a negative for companies that manufacture clean energy products like batteries and solar panels in the United States. It will phase outthe credits supporting manufacturing more quickly than expected, and impose strict rules to forbid tax breaks to companies that rely on Chinese suppliers and other "foreign entities of concern."

That's particularly bad for battery makers, who are heavily dependent on China. First Solar, which manufactures solar panels for utilities in the U.S., should benefit from the domestic manufacturing rules. But First Solar will likely be hurt by a drop in demand for solar because of the removal of tax credits available to utilities for installing it.

Wind

Wind power is and has been in a deep rut. The bill takes away its tax credits, and sunsets credits for wind manufacturing even faster than solar. Wind equipment companies like Vestas will have to rely on overseas business for now. The one bright spot is that the stocks were already beaten down, so they reflect very low expectations.

Biofuels

Credits for the production of biofuels from plant and animal byproducts survived the House bill, and production credits were even extended by an extra year. Midwestern congressional representatives like those credits, which help farmers.

That political support would seem to be a boon for biofuels players like Darling Industries, Calumet and Neste. But those companies have other problems right now that make them shaky investments, and have sent all the stocks lower this year. There simply isn't enough demand for biofuels, and they're not cost-competitive when gasoline, jet fuel, and diesel prices are cheap like they are today. Other Trump administration policies that pull back support for clean energy are also hurting the industry.

Nuclear

Credits for nuclear energy mostly survived the House bill, though one crucial credit will fade away a year earlier than expected.

Both Democrats and Republicans favor nuclear energy, and have called for a "renaissance." And the credits' survival is a good sign for owners of existing nuclear reactors, like Constellation Energy.

A separate production tax credit available to nuclear power is only available to projects that start construction by the end of 2028 -- a relatively short timeline for companies that can take many years to get all the permits and financing. And the tax credits don't solve the bigger problem for nuclear, which is finding utilities, lenders, and a customer base who are willing to take on the financial risk of developing new reactors. Until those issues are cleared up, start-ups like Oklo and Nuscale could still face challenges.

Carbon capture

The bill also continues to support carbon capture, a process that involves siphoning off carbon emissions from industrial plants and oil wells, and then liquefying the carbon and storing it underground. Oil companies like Exxon Mobil have been investing in the area, and could profit off the credits. But demand for carbon capture is still scarce, and Trump's rollback of other environmental rules calls into question whether companies will continue to pursue low-carbon strategies.

There also aren't many ways for investors to buy into the industry. Occidental Petroleum, the oil company that is farthest along in its carbon-capture efforts, has other problems that have sunk its stock in recent years, like high indebtedness.

Write to Avi Salzman at avi.salzman@barrons.com

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May 23, 2025 15:09 ET (19:09 GMT)

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