House Climate Law Rollbacks Hit Solar ETF Hard

Shares of U.S. solar energy companies slumped after the House of Representatives narrowly passed a sweeping tax and spending bill on May 22. The bill severely weakens key clean-energy tax incentives established under former President Joe Biden’s landmark climate legislation. However, the Senate is poised to make significant changes.

First Solar Inc FSLR shares declined 4.3% on May 22, while Solaredge Technologies Inc SEDG and Sunrun Inc RUN shares nosedived 24.7% and 37.1%, respectively, on May 22. Invesco Solar ETF TAN retreated 7.5% on May 22.

Can Senate Republicans Take a Different Approach?

Senate Majority Leader John Thune emphasized that the Senate intends to write its own version of the bill. Several Senate Republicans, including moderates, are already looking to revise the bill, per Bloomberg, as quoted on Yahoo Finance. Senator Lisa Murkowski of Alaska expressed concern over the House’s aggressive approach, particularly regarding clean electricity and nuclear power tax credit phaseouts.

However,despite the Senate's intentions, political realities could complicate changes. Chris Moyer, a former Democratic Senate staffer, warned that Republicans who defy President Donald Trump — a key supporter of the House bill — could face political consequences. The narrow margin in the House further limits moderates’ influence.

Renewable Energy Stocks Take a Hit

The uncertainty surrounding the future of clean energy tax incentives has rattled investors. Renewable energy stocks plunged sharply:

Analysts at Roth Capital Partners flagged the proposed denial of the federal investment tax credit for residential solar-leasing companies as a major blow, as quoted on Bloomberg. This change would impact several firms that rely on leasing models for rooftop solar systems.

How Harmful Would the Bill Prove to Clean Energy Stocks?

Despite market concerns, some Wall Street analysts believe the final legislation will be less harmful than the House version, the Bloomberg article noted. If unchanged, the House bill would represent the most significant setback to clean energy efforts under President Trump’s administration.

Notably, the bill would ban the use of components, subcomponents, or materials from China, disqualifying many solar and battery manufacturers from tax credits. Additionally, the bill would end technology-neutral clean electricity tax credits (covering wind, solar, and more) by 2029.

The bill requires eligible projects to begin construction within 60 days of the bill becoming law. This is a more aggressive phase-out than previous House GOP proposals, which extended credits until 2032.

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This article originally published on Zacks Investment Research (zacks.com).

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