Solar stocks drop on Senate proposal to phase out tax credits by 2028

U.S. solar stocks plummeted in premarket trading after a Senate panel proposed phasing out solar and wind tax credits by 2028, a move considered more restrictive than the original bill and exacerbating existing headwinds from weak residential demand and metering reforms. Enphase Energy, Sunrun, SolarEdge Technologies, and First Solar saw significant declines, while nuclear energy-related companies experienced gains as the Senate proposal extends tax credits for hydro, nuclear, and geothermal energy through 2036. The differing House and Senate versions of the bill may complicate its passage before the July 4 deadline.

Analysis

U.S. solar equities experienced a significant downturn in premarket trading following a Senate panel's proposal to accelerate the phase-out of solar and wind tax credits to 2028, four years earlier than the current 2032 timeline. This legislative development led to sharp declines, with Enphase Energy (ENPH) falling 20.9% to $36.35, and both Sunrun (RUN) and SolarEdge Technologies (SEDG) plunging over 30%, while First Solar (FSLR) dropped 17.3%. Analysts, such as Pavel Molchanov from Raymond James, characterized the proposed Investment Tax Credit/Production Tax Credit provisions as "worse than the industries had hoped," detailing a plan to reduce incentives to 60% of their value by 2026 before complete elimination in 2028. Citi strategists reiterated a "sell on residential solar," viewing the Senate proposal as "far more restrictive than the original bill," despite being a "slight improvement" over the House version. This proposed policy shift exacerbates existing pressures on the solar sector, which is already contending with weak U.S. residential demand due to high interest rates and adverse metering reforms in California. The impact of these challenges is reflected in the sector's recent performance, with Sunrun shares down 27% and Enphase Energy down 63% over the past year, and the Invesco Solar ETF declining 22.8% in the same period. Conversely, the Senate's draft bill offers a more favorable outlook for other renewable sources, proposing an extension of tax credits for hydro, nuclear, and geothermal energy through 2036, which spurred gains in related stocks like Nano Nuclear Energy (+4.8%) and Oklo (+5.1%). However, the ultimate passage of President Trump's "One Big, Beautiful Bill Act" faces complications due to differing versions between the House and Senate, creating uncertainty ahead of the self-imposed July 4 deadline.

Key Decisions for Investors

• Investors should exercise increased caution with U.S. solar equities such as ENPH, RUN, SEDG, and FSLR, given the proposed accelerated tax credit phase-out which could materially impact future profitability and growth trajectories, particularly in a sector already facing demand headwinds.
• Consider re-evaluating exposure to or exploring opportunities in nuclear (e.g., NNE, OKLO), hydro, and geothermal energy sectors, as the Senate proposal to extend their tax credits through 2036 presents a more stable and potentially favorable regulatory outlook compared to solar and wind.
• Closely monitor the legislative progression of the "One Big, Beautiful Bill Act," as discrepancies between House and Senate versions introduce significant uncertainty that could affect investment theses across the energy sector, with the July 4 deadline creating a near-term catalyst for volatility or resolution.