Shares of solar stocks, including rooftop solar provider Sunrun (RUN +3.95%), renewables-focused utility NextEra Energy (NEE +0.08%), and renewable power provider AES Corp. (AES +0.11%), plunged on Thursday, falling 40%, 9.1%, and 5.2%, respectively, as of 12:50 p.m. ET.
Solar stocks took it on the chin -- especially residential rooftop solar providers -- after the "big, beautiful" tax and spending bill passed the Republican-controlled House of Representatives this morning.
NASDAQ: RUN
Key Data Points
Even worse than feared for solar and renewable energy
While it was expected that the bill would phase out some of the Inflation Reduction Act's renewable energy tax credits over time, the House bill was actually even worse than feared for the solar industry. The bill now phases out most clean-energy tax credits for utility projects either begun more than 60 days after passage or placed into service after 2028. The bill also restricts foreign entities' involvement in renewable energy projects, making it even more difficult for developers to deploy projects within the tight time frame.
This morning's bill was more restrictive than the version of the phaseout included in the House Ways and Means Committee version released May 12. Hence the reaction from utility solar and renewable companies like NextEra and AES. For instance, AES has 11.7 gigawatts of contracted energy projects that have been signed but are not yet operational, and only half are currently under construction. So, it's unclear how much of that backlog may be at risk.
But the bill was also much, much more dire for residential rooftop solar companies, throwing the entire industry into chaos. According to an earlier version of the bill, the tax credit for installing rooftop solar would be phased out for those who owned their systems, but would stay in place for homeowners and business owners who leased their systems -- which applied to the vast majority of rooftop solar deployments.
However, the bill that passed this morning also rolled back the tax credit for leased systems, which one Wall Street analyst called "disastrous" for the rooftop solar industry. Another claimed the bill as passed would mark "the end" of the U.S. rooftop solar industry as it is currently constructed.
That's why Sunrun, whose entire business is built around residential solar, is down a stunning 40% in a single day.
In addition to the phased-out tax credit, Sunrun also has exposure to imported components and modules, which will also now be taxed by the administration's recently implemented tariffs and could be affected by foreign partnership restrictions in the bill. Sunrun imports about 50% of its solar panels, and even its domestically purchased batteries and other components have exposure to Chinese supply chains. So, the recent tariffs and other limits on foreign components and partnerships in the bill could make things doubly bad for Sunrun.
Image source: Getty Images.
But the bill isn't law yet
It should be noted that the One Big, Beautiful Bill has only passed the House, and by a single vote. The bill will now head to the Senate, where many Senators have expressed reservations about the current House provisions. So, investors should expect more Washington dealmaking and negotiation in the weeks ahead.
However, the passage of this bill with these worse-than-expected provisions is still a big net negative for any domestic solar player. Interested or current investors need to hope that some of the credits will be reintroduced in the Senate version and then passed after the two bills are reconciled.
As of now, I would stay away from solar-exposed stocks, especially rooftop solar names, until the dust settles.
