Five prominent stock analysts and market watchers talked on a live podcast November 20 about how the market is reacting to the prospects for the clean energy sector after the Trump win and Republican sweep of Congress. The discussion covered how project valuations are being affected, who are the winners and losers in the sector, what potential inflection points to watch for in 2025, and other topics.

It followed a discussion a few days earlier with five Washington insiders, including two former senior officials during the Trump first term, about what they expect to happen to the Inflation Reduction Act and other Biden policy initiatives. A link to that discussion can be found here: Post-Election Outlook for the US Energy Transition.

The five stock analysts are George Gianarikas, managing director and senior analyst with Canaccord Genuity, Joe Osha, senior managing director for equity research with Guggenheim Securities, Phil Shen, managing director and senior research analyst at Roth Capital Partners, Whitney Stanco, managing director and senior policy analyst with Compass Point Research and Trading, and Paul Zimbardo, managing director and energy research analyst at Jefferies. The moderator is Keith Martin with Norton Rose Fulbright in Washington.

Disclaimers

MR. MARTIN: Several of our panelists need to make disclosures.

MR. SHEN: Roth makes a market in shares of Canadian Solar, Enphase, Jinko, Maxeon, Sunnova, Nextracker, Sunrun, SolarEdge, Shoals and Emeren Group and, as such, buys and sells from customers as a principal. Shares of Sunnova, Shoals, Emeren and Tigo may be subject to the US Securities and Exchange Commission's penny stock rules. Within the last 12 months, Roth has received compensation for non-investment banking services from the Emeren Group.

MR. GIANARIKAS: Canaccord Genuity has received compensation from the following companies for investment banking: ASP Isotopes, Aspen Aerogels, Aurora innovation, Innovex, FuelCell Energy, NuScale Power, Plug Power, Surf Air Mobility and Wallbox.

MS. STANCO: All of the views expressed in the discussion accurately reflect my personal views about the topics. I have not received compensation or other payments directly or indirectly related to the specific recommendations made or the views expressed.

Nervous Investors

MR. MARTIN: We had a call four days ago with five Washington insiders who said they expect Republicans to take a scalpel rather than a sledgehammer to the Inflation Reduction Act. Parts of the IRA will survive, some parts of it will be rolled back, and some parts of it will be modified. Many renewable energy developers are focused on what they need to do to ensure projects are far enough along to be grandfathered from any changes.

We closed the call with a comment from a listener who is CEO of a renewable energy company. He said the discussion to which he had just listened was too rational. “After all, we are talking about a president who just nominated Matt Gaetz to serve as attorney general. Investors are going to be spooked about this, and the regulatory uncertainty is sure to cause tens of billions of dollars to sit on the sidelines until the path forward is understood.”

George Gianarikas, are you seeing any evidence that investors are in fact spooked, and that capital is sitting on the sidelines?

MR. GIANARIKAS: Even though the view of the Washington insiders is that Congress will use a scalpel rather than a sledgehammer, the markets have taken a sledgehammer to some of our stocks. Investors are taking a back seat and waiting to see what will happen for many of the equities on our coverage list, particularly those that are waiting for DOE loan guarantees or CHIPS Act funding that has not been dispersed. It is putting it lightly that investors are very concerned that those funds may never make their way to the projects that are waiting for them.

MR. MARTIN: Joe Osha, same answer?

MR. OSHA: Very much the same thing. It is important to remind our listeners that there are two things to think about here. There is what might actually happen, but there is also uncertainty. Stocks are in the end discounting mechanisms.

You might think Congress will use a scalpel or a sledgehammer to dismantle parts of the Inflation Reduction Act next year, but not knowing for sure is one of the inputs that determines stock prices. Right now, the not knowing is the dominant factor. A high risk premium is being applied to equities as a result. Even if you don't think Congress will use a sledgehammer, it has been a sledgehammer for stocks because of the uncertainty.

MR. MARTIN: Markets face uncertainty every day. It may be the spring before there is a clearer picture. Phil Shen, what market reaction are you seeing?

MR. SHEN: I agree with what has been said. I focus on solar stocks. The TAN fund is down 17% since the election. Sunnova is probably down the most: 50%. The market is reacting not only to uncertainty at the legislative level, but also at the executive branch level. Rules that federal agencies issued may be reversed.

We see a short-term acceleration of activity. It will be followed by a pause as the market takes stock of changes.

MR. MARTIN: Whitney Stanco, you are in Washington. You have been following energy policy for the last 20 years and have seen this process before. Do you agree that a lot of capital will sit on the sidelines until things sort out?

MS. STANCO: Yes. We have been talking to folks for at least the last 18 months about what would happen after a Republican trifecta. Some of that was already being baked in, and then we got confirmation of the outcome. Past experience suggests that now we are in this scenario, the markets will eventually start to get hungry for some good news and for any little bit of information that is not the worst-case scenario.

MR. MARTIN: We saw that to a degree on Thursday as some solar stocks went up, possibly based on greater confidence that Congress will use a scalpel rather than a sledgehammer. Paul Zimbardo, will investors sit on the sidelines until they have a clearer picture what Congress will do?

MR. ZIMBARDO: I agree with Whitney. When a report came out on electric vehicles, the market took comfort that it was not the worst-case scenario. A lot of capital will stay on the sidelines, but we are seeing green shoots. An example is solar tracker stocks. Some investors are dipping a toe in the market, but with so much uncertainty, there has not been a lot of follow through to date.

Winners

MR. MARTIN: George Gianarikas, the energy transition is a sprawling sector. What parts of it do you think have been buoyed by the trifecta that will put Republicans in control of the White House and both houses of Congress in January?

MR. GIANARIKAS: Our definition of sustainability is fairly broad. One segment we cover that used to be tangential to Tesla, but that now is a key part of its strategy, is autonomous driving. Over the weekend, we got news that the Trump administration may aim for rules that are more federal in nature as opposed to the state-by-state rules we have today. You can see a favorable reaction in shares of Tesla, Mobileye and another company called Aurora. It is seen as a positive to have federal rules that will apply nationwide.

MR. MARTIN: Joe Osha, which parts of the sustainability sector do you think will be buoyed?

MR. OSHA: I have three observations.

First, "buoyed" may be a strong word, but I and probably a couple of other people on this call were in Florida attending meetings of the Edison Electric Institute, which is the trade association for the regulated utilities. No one was talking about stopping or even materially altering solar, storage and wind development pipelines. That's because they still think the base investment tax credit and production tax credits will remain in the tax code and because they are already building, for example, 2025-year assets. One company executive said to me, "We can't be pivoting every four years." There may be more stickiness to some of these projects than people realize, assuming we do not get major changes in the base tax credits.

Another point is there are some areas around sequestration and carbon capture that are perceived as potential beneficiaries. I don't cover this company, but NET Power is up about 30% since the election. It is basically a carbon capture technology company. The market thinks some segments that are adjacent to fossil fuel are potential beneficiaries.

Finally, Chris Wright, who is expected to be appointed US energy secretary, is on the board of Oklo, which is a small modular reactor company.

MR. MARTIN: Phil Shen, which parts of the energy transition will be helped?

MR. SHEN: At least in my coverage universe, which is solar, the biggest beneficiaries are companies that are setting up US manufacturing facilities. The TAN fund is down about 20%. First Solar is only down about 10%. With the trifecta, look for more tariffs. Look for solar fiat legislation and other steps to support domestic manufacturing. Last Thursday, John Moolenaar, who chairs a House select committee on China, introduced a new bill to revoke China’s permanent normal trade relations status. That could help US manufacturers.

MR. MARTIN: Whitney Stanco, what parts of the energy transition will be helped by the Trump victory?

MS. STANCO: I second the comment about carbon capture and sequestration. Carbon capture tax credits are probably secure. The Trump administration might issue more class VI injection well permits. We could get 19 approvals next year.

Republicans in Congress favor nuclear technology. If you are looking for an advanced reactor buildout, you have leadership at the Nuclear Regulatory Commission that might be more willing after the Trump win to work with industry on streamlining permitting.

MR. MARTIN: Paul Zimbardo, who are the winners?

MR. ZIMBARDO: I second the comments about nuclear and domestic manufacturing of solar equipment and batteries. There is an expectation that tax credits for these sectors will hold, although it is not a consensus.

Losers

MR. MARTIN: George Gianarikas, who are the big losers?

MR. GIANARIKAS: Clearly anything that is project based. We think the utility-scale battery companies are in a good spot in the long term, but there is uncertainty about how things will play out at the project level in the near term, and that uncertainty is reflected in share prices.

Offshore wind is a clear Trump target. He said he plans to stop such projects.

MR. MARTIN: Joe Osha, who will be harmed?

MR. OSHA: A key issue for many companies will be access to capital. You can draw your own conclusions in terms of companies, but with the risk premium for equity increasing and debt spreads blowing out, if you need access to those markets to fund your business, then you have a potential problem.

MR. MARTIN: Phil Shen, where are you most concerned?

MR. SHEN: A lawyer we are in touch with said Trump will shift the power from developers to manufacturers. We have been writing that some level of domestic content may be required to claim the 30% base investment tax credit. That might shift power from developers to manufacturers who have US factories.

It might also put some projects at risk. A lot of utility-scale solar projects are relying on a 40% ITC—a 30% base and a 10% domestic content or energy community bonus credit—to make their economics work. A large swath of projects may be challenged if the ITC is capped at 30%.

MR. MARTIN: Whitney Stanco, who are energy transition sector losers?

MS. STANCO: Electric vehicles and solar. Both will have issues with the two T's, taxes and tariffs. Add wind on the tax front and offshore wind on the regulatory side.

MR. MARTIN: Paul Zimbardo, same question.

MR. ZIMBARDO: Definitely agree about offshore wind. Some companies have announced they are pulling back, and there is uncertainty about existing projects.

Potential Inflection Points

Trump is nothing if not energetic. He has an ambitious agenda. If you had to rank them, what Trump potential actions could prove the biggest inflection points for the sector?

MR. GIANARIKAS: The US Nuclear Regulatory Commission has been incredibly stringent when it comes to approving new reactor designs and enrichment of nuclear fuels. Any changes to the NRC that could lead to expedited action around new reactor designs, and expedited permitting could be very positively viewed by the market.

MR. MARTIN: Joe Osha, what are potential inflection points?

MR. OSHA: The area where President Trump will have the greatest latitude to act will be trade policy. I expect to see some pretty sweeping announcements on trade, for example on the lithium ion cell front where a lot of product comes from China. Action on tariffs and trade could precede any legislative action on taxes and other parts of the Trump agenda.

The market will watch intently for what comes out of a messy budget reconciliation process next year.

I want to second the comments about the NRC. There is strong bipartisan support for reforming that institution by making it friendlier to technological development.

MR. MARTIN: Phil Shen, what are some potential inflection points?

MR. SHEN: The number one thing, assuming Congress uses the budget reconciliation process to roll back parts of the Inflation Reduction Act, is the scale of the grandfathering. A key question will be how much time developers will have to take advantage of the existing 30% tax credit plus adders.

Next is what the new domestic content requirements might look like. Will they be similar to what the Biden administration enacted, which is ramping from 40% to 55% over four years?

Finally, trade is important as Joe mentioned. What new tariffs will be imposed? We could see anti-dumping and countervailing duties on products from Indonesia, Laos and Turkey, for example. The whack-a-mole game will continue. The speed of change will be important.

MR. MARTIN: Historically whenever Congress has withdrawn incentives, it has grandfathered projects that have advanced to a stage that makes it unfair to withdraw the incentives. Developers are usually given four years to finish construction.

Whitney Stanco, where do you see potential inflection points?

MS. STANCO: Taxes and tariffs. The first big inflection point will be when the Trump team releases its plans for budget reconciliation. The process will start in the House. Hopefully, a clearer picture will emerge by the spring.

Estimates of the potential revenue gain from scaling back the tax provisions in the IRA run anywhere from $600 to $900 billion over 10 years.

Our base case view is that the Republicans will not go after the whole thing. If the goal is to find ways to pay for extending the 2017 Trump tax cuts, the section 45X tax credit for manufacturers is pretty expensive to the Treasury. The tax credits for generating solar electricity are also expensive. Will Congress adjust the time period for these tax credits? Will Congress go back to doing this by technology so that nascent technologies can still get credits while mature ones cannot?

Turning to tariffs, there is a lot that Trump can do straight from the White House. There is a sense that we should take Trump seriously, but not literally. It will be interesting to see what he tries to do immediately and what will be pushed to the Commerce Department and move more slowly. Will Congress get involved? The tariffs would have to be imposed by Congress to count the revenue as part of the scoring for the budget reconciliation bill, unless Congress changes the scoring rules.

MR. MARTIN: Paul Zimbardo, you have been batting cleanup. It can be hard to come up with something new time after time.

MR. ZIMBARDO: I am used to it with a last name that starts with "Z." One potential inflection point that has not been mentioned is the expectation that Trump will relax almost all the standards on coal plants. That could affect how much new capacity we need from renewables. If the relaxation is not as extreme as people expect, it would be a pretty big positive for renewable energy developers.

Valuations

MR. MARTIN: Let's move into a more rapid-fire round of questions, starting with the tax credits for generating electricity from renewables. The general expectation is that those will be scaled back in some fashion, perhaps by accelerating the distant phaseout dates. Are you already seeing this affect project valuations? Is it also affecting the cost of capital to the sector?

MR. OSHA: Absolutely yes in terms of cost of capital. Remember when stock prices go down, that means your cost of capital goes up, by definition. The sector is now viewed as more risky. That will make it more expensive for companies to raise money.

One interesting thing that we are all going to be watching for is what the asset-backed securities market for residential solar will look like. The spreads have remained reasonably tight. Will they move higher?

MR. MARTIN: Any other views?

MR. SHEN: There has definitely been an increase in cost of capital. Share prices have fallen. The rate on 10-year Treasury bonds has gone up. The market is assuming that the Trump policies will be inflationary due to tariffs and large budget deficits. We have been assuming an acceleration of the distant phaseout dates for tax credits for generating renewable electricity to something like 2027 or 2028. That would reduce the present value of renewable energy companies. It has affected valuations for companies like Sunnova and Sunrun.

MR. MARTIN: Fears about larger budget deficits and tariffs have the potential to drive up borrowing costs. They could also reduce the value of the dollar and make imported equipment more expensive.

MR. OSHA: Chinese manufacturers have a lot of room to reduce prices for solar panels, inverters, batteries and other equipment to hold market share. Even in a weaker dollar scenario, companies like CATL and BYD might find a way to cut their costs and prices to compensate for the weaker dollar and higher tariffs.

A few years ago, the residential solar companies were raising money at less than 100 basis points over the benchmark floating rate. Today, the spread for debt above the 10-year Treasury is 300 basis points. That really hurts. If we see another movement in the benchmark rate of 50 or 80 basis points on top of that, it is very painful for residential solar companies. That dynamic on the debt side of the balance sheet plays out for all the renewable energy developers.

Market Segments

MR. MARTIN: Let's move to hydrogen.

The latest rumor is the final hydrogen tax credit regulations may be delayed until after Trump takes office on January 20. Share prices for the large hydrogen companies have tumbled since the election. The Treasury is under pressure from environmental groups to lock in the "three pillars" before he leaves office.

Is it a good thing or a bad thing for decisions about hydrogen tax credits to be punted to the Trump administration, and what is your outlook generally for the hydrogen sector?

MS. STANCO: If the Biden Treasury finalizes the section 45V tax credit regulations, the market will probably look through that knowing that there are likely changes on the horizon. However, those rules may stay in place for some time while the Trump administration brings in a new team at Treasury.

Perhaps the Trump Treasury then waits to see what Congress will do on the Inflation Reduction Act. You can imagine a scenario where regulators are reluctant to work on something that may be changed in the reconciliation bill.

MR. GIANARIKAS: I recently attended a prominent hydrogen company's analyst day. Regardless of what the rules might be from the Biden Treasury, if they skew toward the environmentalist side of things, then they will probably end up being challenged in court.

The hydrogen company felt the recent Loper Bright decision by the US Supreme Court might limit what the Treasury is able to do. The three pillars were not mentioned in the statute passed by Congress.

MR. MARTIN: Let's move to section 45X tax credits for manufacturers of solar, wind and storage components. They appear, with hindsight, to have been the most expensive tax credits in the Inflation Reduction Act. What is the market expectation about whether they will remain in place, and how significant will it be if Congress denies them to manufacturers with ties to China?

MR. SHEN: We think the 45X credits are more safe than other parts of the IRA. There is a lot of support in Congress for domestic manufacturing.

On your second question how significant will it be if Congress denies 45X credits to manufacturers with ties to China, it would slow the ramp up of US manufacturing.

Many projects that have been announced have some form of collaboration with Chinese companies. We see risk to many of them. Our sense is that the foreign entity of concern rules that are coming may be much more stringent than what has been proposed to date. That means pure American companies like First Solar are in a much better position to maintain their leads.

Coming back to the comment about the power shifting from developers to manufacturers with US factories, developers would have a harder time securing equipment with enough domestic content to qualify for a domestic content bonus tax credit on their projects if the Chinese are barred from moving their factories to the US.

MR. MARTIN: Any other views on 45X?

MS. STANCO: I agree with Phil. It is likely that 45X stays, but we need to watch for FEOC language and details like whether there will be any grandfathering for new manufacturing facilities that are already under construction or in advanced stages of development. The proposed legislation that was introduced late last year did not include any transition relief, but historically Congress tries to look at whether companies have already committed to investments in reliance on the credits.

MR. MARTIN: "FEOC" stands for foreign entity of concern. It is the technical term for companies tied to China, Russia, Iran and North Korea.

The Treasury has been slow to issue guidance on section 45Z tax credits, which are credits for making sustainable aviation fuel and other clean transportation fuels. The tax credits last for only three years starting on January 1. Biofuel producers will be pressing for an extension. There is a debate about whether to allow imported feedstocks like Chinese cooking oil. How is all of this affecting the transportation fuel sector, and what challenges specifically do you see for sustainable aviation fuel?

MS. STANCO: The industry wants to see guidance as soon as possible. Fuel producers have registered, and they can book the tax credits without guidance from the Treasury, but it is difficult to calculate the carbon intensity of the fuel and, by extension, the amount of the tax credit.

The industry is keen to get guidance before January 20 when the Trump administration takes over. We are giving 60% odds that we will get something by then from Treasury.

Three years for the tax credit is probably not long enough to justify the required capital investments to produce fuel. We are likely to see a strong push for an extension. We think an extension is likely because biofuels enjoy bipartisan support. What is less clear is whether Congress will modify 45Z as well or just grant an extension.

MR. MARTIN: How is the market viewing the prospects for storage companies after the Trump win?

MR. ZIMBARDO: Even before the election, we were seeing more demand for storage. It is one of the fastest technologies to deploy to help with grid congestion. The pre-election momentum for storage may wobble a little, but ultimately should still hold.

MR. OSHA: Storage is an area where we are seeing lots of deployments. At the EEI meetings last week in Florida, one utility after another said it was adding more storage to its plans. At the same time, the battery cell supply chain is heavily China-centric. It is too early to say how those opposing forces will play out.

For example, the Tesla is still mostly sourcing cells from China for its Megapack. A 60% tariff on imported Chinese cells would be very disruptive. That is an area that is worth watching closely.

MR. MARTIN: How is the market viewing the prospects for RNG—renewable natural gas—companies after the Trump win?

MR. GIANARIKAS: The trading market for D3 RINs has been more volatile lately in a sign of worries around what the Trump win means for the market.

Many companies in the sector are trying to insulate themselves from that volatility by entering into long-term agreements that help RINs purchasers meet state-mandated requirements for transportation fuels. We expect a push and pull between what the federal government tries to do and what the states will try to do.

Audience Questions

MR. MARTIN: We have a lot of audience questions. We will tackle as many as we can in the 10 minutes remaining.

Do you expect a significant reduction in the cost of acquiring development-stage renewable energy projects?

MR. OSHA: Not in the near term for utility-scale projects.

The regulated utilities and large developers have not really factored in the bonus tax credits in project valuations. This will come down to whether the base ITC and PTCs are safe. If the market decides they are likely to go, then the valuations will change.

MR. SHEN: If Congress ends up requiring domestic content to get to a base 30% ITC and otherwise the ITC is only 6%, then that will be a challenge. Projects that are economic today may become uneconomic until US manufacturing ramps up.

Another thing that could affect project valuations is removal of most favored nation status for China on US trade. Wafers from China and tools used to make solar cells could become subject to tariffs at a 100% rate. That would make it harder to ramp up US manufacturing.

MR. OSHA: If we impose a number of obstacles to claim a 30% ITC, then Phil is right.

MR. MARTIN: Next audience question. Market analysts expect a rise in M&A activity during the Trump administration. Do the analysts on the call believe this will include the renewable energy sector and, if so, why?

MR. GIANARIKAS: There are several companies we cover that are waiting for DOE loans or CHIPS Act grants where the outlook for the funds actually clearing before January 20 is fairly low. I expect many of the companies in our coverage to explore strategic alternatives if the funds do not clear in time. I expect there to be some duress for such companies if the money does not come through.

MR. MARTIN: A lot of the solar equipment suppliers are major Chinese names like Jinko, Canadian Solar, Trina and so on. Do you sense any pullback by US developers from placing new purchase orders with such suppliers?

MR. SHEN: Some, but we are in a transition period to a new set of policies. I think people are still processing things.

Right before the election, we saw Trina sell its US module manufacturing assets to Freyr, which is a European battery company. This was a sign of potential difficulties for Chinese manufacturers to operate in the US. My sense is the expanded FEOC legislation might take a harder line than people expect.

MR. MARTIN: One interesting phenomenon is how quickly markets react to changes. When the Challenger space shuttle disaster happened, the market made up its mind by the end of the day that the O-rings were the cause of the disaster, even though four companies’ products could have been to blame. It was a year later before an investigation confirmed that it was the O-rings.

How is the market reacting to the nomination of Chris Wright to head the Department of Energy?

MR. OSHA: People are overreacting to it. He said some things about fossil fuel development that some people might not like. The majority of policy affecting the deployment of renewables sits with the Treasury and IRS. If he helps to advance small modular reactors, that is a positive in my opinion. The Treasury will be more central to the speed of renewables development.

MR. SHEN: I second that. The energy secretary is not really the focus. DOE doesn't create much policy. Most renewable energy policy is tax policy.

MS. STANCO: I third that.

MR. MARTIN: Paul Zimbardo, you follow the nuclear sector. There has been a lot of talk about small modular reactors. People like Steven Chu, a physicist at Stanford who was one of Obama's energy secretaries, have said they do not expect SMRs to be economic until around 2050. What do you expect?

MR. ZIMBARDO: Google signed an agreement last month to buy electricity from multiple SMRs from Kairos Power. More such agreements are expected to follow.

The hope is that tech companies like Google can carry SMRs all the way from the first through the tenth major deployment of SMRs until SMRs become lower risk and the utilities are willing to step up as well. There seems to be bipartisan alignment around nuclear. SMRs are still in their infancy.

MR. MARTIN: Elon Musk appears well positioned to affect policy. He says he gave $200 million to Trump. How do you expect Musk's involvement to affect the clean energy sector?

MR. GIANARIKAS: Autonomous driving is clearly an important part of the Tesla story. Tesla had an entire analyst event in Southern California dedicated to it, and it appears to be at the top of the list of things he would like the incoming administration to support.

Tesla has a different approach to enabling autonomous vehicles that are camera only and use the services of thousands of Nvidia chip sets and lots of electricity. That is significantly different than most of the other companies in the space. I am assuming the federal rules will be drawn up with the help of Elon Musk and will be favorable to Tesla.

MR. MARTIN: Any effect on storage?

MR. OSHA: On the one hand, a big tariff on CATL cells would be a problem for Tesla. CATL cells are used to make Megapacks and are a material contributor to Tesla's results at this point. On the other hand, Tesla is probably in a better position than other battery manufacturers to ramp up production of battery cells in the US.