Many parts of the U.S. were sunny on Tuesday, but that happy situation didn’t extend metaphorically to solar energy stocks. Quite a few took major hits that trading session on the latest developments in the legislative sphere.
One of the industry’s victims was First Solar (FSLR -17.89%), which went dim with a nearly 18% decline in its share price. That decline was far steeper than the 0.8% slip of the S&P 500 index that day.
The tax credits might come to an abrupt end
President Trump’s One, Big, Beautiful Bill remains a massive bone of contention in Congress, and has been the subject of much criticism and debate among lawmakers. It’s also undergoing change as Senators adjust it in an effort at compromise.
Image source: Getty Images.
On Tuesday, the Senate Finance Committee proposed speeding up the elimination of tax credits for solar and wind energy. Under current law, these do not expire until 2032; under the new proposal, they would be reduced by 60% next year and phased out entirely in 2028.
This contrasts with the bill’s stance on tax credits for other forms of energy, specifically nuclear, hydroelectric, and geothermal. In its current form, the proposed law would actually extend these credits to 2036.
Bulls should remain bullish
Although there is likely far more horse trading to come before the Senate finally settles on a form of the bill it can accept, renewable energy will almost certainly remain a target.
Investors are right to be concerned about the effect on solar and other types of green energy companies, although this feels like an over-reaction — the better companies in this segment should be able to adjust to the demise of tax credits.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends First Solar. The Motley Fool has a disclosure policy.
