Morningstar

Clean Energy: House Tax Bill Broadly in Line With Our Expectations, but Better Than Many Feared

We view this as a first draft, which is likely to see changes as the bill is debated in Congress in the weeks and months ahead.

Collage of clean energy images, with wind turbines and solar panels, and sustainability icons.
Securities in This Article
First Solar Inc
(FSLR)
Enphase Energy Inc
(ENPH)

On May 12, the House Ways and Means Committee released its long-awaited budget reconciliation bill. The bill includes updates to key clean energy incentives established or extended under the Inflation Reduction Act.

Why it matters: Tax credits play a meaningful role in the buildout of wind and solar in the United States. Since the election of Donald Trump the market has feared a full repeal of the Inflation Reduction Act and its bevy of clean energy incentives.

  • The proposed changes in the House draft are broadly in line with our expectations that the tax credits would be phased out earlier than currently written in law but not repealed immediately.
  • Many solar stocks rose 10% or more on May 13 in response to the draft bill. We believe the market reaction speaks more to calming investor fears of a worst case scenario than the outcome being materially better than expected.

The bottom line: We are maintaining our fair value estimates across our clean energy coverage after digesting the initial language. We view this as a first draft, which is likely to see changes as the bill is debated in Congress in the weeks and months ahead. While we see the draft as alleviating worst-case fears for investors, we don’t see it as a buying opportunity, with many clean energy stocks fairly valued following recent share price appreciation.

  • The earlier phaseout of the Production Tax Credit and Investment Tax Credit, which is now slated to begin in 2029 (originally 2032 or later), was broadly in line with our expectations.
  • We see First Solar FSLR as among the biggest beneficiaries of the proposal, given restrictions on claiming tax credits for equipment or entities from China and little change to domestic manufacturing credits. In contrast, the loss of the residential clean energy tax credit (25d) beyond this year would be a negative for Enphase ENPH, but we would expect the market to shift toward more lease-financing structures over time, mitigating the impact.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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