U.S. Presidential Elections and the Solar Industry

As the U.S. presidential elections loom, the solar industry finds itself at a critical juncture.

The 2024 election results could have significant implications for the future trajectory of solar stocks and the broader clean energy sector.

The Inflation Reduction Act, signed into law in 2022, has provided unprecedented support for the solar industry, leading to rapid growth in both investments and installed capacity.

However, a potential shift in political power in Washington could bring changes to these policies, which investors and industry leaders are closely watching.

According to analysts at Evercore ISI, despite the election-driven uncertainties that may introduce short-term volatility, the U.S. solar industry remains on a strong growth path.

The IRA's provisions, particularly the generous clean energy tax credits, are a crucial driver of this growth. The Act's clean energy credits, estimated to total between $800 billion and $1.2 trillion over the next decade, have been instrumental in propelling solar energy to become the leading source of new power generation in the U.S. Evercore ISI projects over 250 GWdc of solar installations between 2024 and 2029, with annual growth averaging around 4%.

The impact of the election hinges on which party takes control of the executive and legislative branches.

A Democratic victory, with President Biden or a candidate from his party in the White House, would likely ensure the continuation of the IRA's incentives for solar and other clean energy sources.

Evercore ISI analysts believe that even if a Republican candidate like former President Donald Trump were to win, a complete repeal of the IRA is unlikely, especially given the bipartisan support for job creation in the renewable energy sector.

Indeed, red states have been some of the largest beneficiaries of the IRA, with more than $120 billion in clean energy investments since 2021, including $10.9 billion in solar projects.

If Republicans gain control, they may attempt to modify certain provisions of the IRA. For example, there could be a shortening of the Investment Tax Credit and Production Tax Credit programs, or changes to the transferability of these credits.

However, Evercore ISI expects that most of the current legislation will remain intact due to the widespread economic benefits, especially in Republican-dominated states where solar investments have surged. Additionally, any efforts to dismantle the IRA would face opposition not only from Democrats but also from a growing number of Republicans, particularly in districts that have seen significant solar-related job growth.

On the stock market front, solar companies could experience different outcomes depending on the election results. Evercore ISI points out that companies like First Solar (NASDAQ:FSLR), which has a U.S. manufacturing presence, are well-positioned to benefit from continued or heightened tariffs on Chinese imports, regardless of who wins the election. First Solar's recent expansions in Alabama and Louisiana underscore its strength in the domestic market, where tariffs are likely to favor U.S.-based manufacturers.

Meanwhile, residential solar firms such as Sunrun (NASDAQ:RUN) and Sunnova might face headwinds if changes to the ITC are implemented, although Evercore ISI considers this scenario unlikely.

A key factor that could influence solar stocks in the post-election period is interest rates. Residential solar, in particular, has been affected by higher interest rates, which have dampened consumer demand. If interest rates continue to decline, as some analysts expect, this could provide a boost to residential solar firms. However, the uncertainty surrounding the election could lead to market volatility in the short term, as investors assess the potential for policy changes that could impact the solar sector's profitability.