Solar stocks tumbled this week as Donald Trump gains ground in the polls, with the Republican Party rallying around the former president after a shocking assassination attempt on him on July 13. The Democratic Party, meanwhile, is in disarray after President Joe Biden's weak debate performance against Trump in June. Pressure is growing within the party for Biden to drop out of the race , as many Democrats fear he is poised to lose the election and could cost them the House and Senate. This week, the benchmark Invesco Solar ETF (TAN) and the iShares Global Clean Energy ETF (ICLN) are down 6.2% and 4.6%, respectively. The U.S. heavyweight First Solar has lost 8.4% this week. It has been down 18.6% over the past month, as the company's recent rally on artificial intelligence demand has fallen apart and political uncertainty in the U.S. weighs on the stock. Renewable energy investors are worried that Republicans could pull off a clean sweep of the White House and Congress in November, putting the party in a position to dismantle the Inflation Reduction Act. Piper Sandler and Wolfe Research now see a 70% likelihood that Trump will win the presidential election and at least a 50% chance that Republicans will secure a majority in Congress. The landmark IRA, passed by Democrats in August 2022 without any Republican support, has provided a raft of tax benefits to accelerate the growth of renewable energy and bring manufacturing back to the U.S. Tax credits hang in the balance If the IRA is repealed, utility-scale solar would become less competitive than natural gas as the loss of tax credits would increase the levelized cost of solar energy by more than $10 per megawatt hour, according to a Piper Sandler research note published Monday. First Solar would face the most severe impact in the utility space, with the elimination of the 45X production tax credit reducing the company's earnings per share by more than 60% in 2026, according to Piper. The impact would also be significant for Array Technologies and Nextracker , down 9% and 8.5% this week. Residential solar stocks, including Enphase , Sunnova , Sunrun , SolarEdge and SunPower , would face a "severe impact" if Republicans successfully weaken or entirely repeal the IRA, according to Piper. Enphase tumbled 9.5% this week, while SolarEdge fell 15.5%. SunPower also lost 43.9% and Sunnova is down 6.6% while Sunrun shed less than 1%. Under a full repeal of the IRA, the investment tax credit that has supported residential solar would decline to 10%. As a consequence, "most markets would become uneconomic," which would trigger a "severe reset in activity" across the U.S., according to Piper. The residential space would face a pullback even under a partial repeal scenario in which supply-side tax credits are maintained, according to the firm. The stock in the clean energy space with the least exposure to election risks is GE Vernova , according to a July slide deck from JPMorgan on clean energy. GE Vernova's core business is manufacturing and servicing gas turbines, though the company is also involved in wind and nuclear energy. Trump has repeatedly expressed his preference for oil and natural gas. Buying opportunity The politics of repealing the IRA, however, may prove complicated even if Republicans win control of all branches of government. Some 46% of projects announced since the passage of the IRA are in states that traditionally vote for the GOP, while 20% are in swing states, according to UBS. Leading solar CEOs told CNBC in March that they believe their investments in Republican states w ould shield them from Trump repealing the IRA . "Due to the amount of investment and jobs created in 'Red' and 'Purple' states, we think the majority of the IRA will be left intact," Baird analyst Ben Kallo told clients in a Thursday note. First Solar, for example, has invested in manufacturing plants in Ohio, Alabama and Louisiana. First Solar stock falling on the risk of a Republican clean sweep creates a buying opportunity, Kallo said. Baird values First Solar at $307 per share, which would imply 44% upside from Thursday's close of $213.58 per share. As a domestic manufacturer, First Solar potentially stands to benefit if the U.S. trade war with China intensifies under a Trump administration, according to Kallo. Though total IRA repeal may be unlikely, solar and clean energy stocks will "continue to be volatile until (and even after) the election due to headline risk," Kallo said.
