The renewable-energy industry is bracing for impact as $40 billion in tax credits is under threat

Former President Donald Trump won a second round at the presidency, and among the Biden-era initiatives potentially on the chopping block is the Inflation Reduction Act and the billions in capital it’s flooding into renewable-energy projects. 

Leading up to election night, the renewable-energy industry projected confidence that their subsidies were safe even under another Trump presidency. Now that he’s won and the House looks like it may also flip to Republican control, the market appears to disagree: solar stocks and ETFs are down today, with Invesco Solar ETF dipping as much as 13% Wednesday morning ET.

“Control of House remains unclear at this moment — this being the single biggest determinant of IRA,” Jeffries analysts wrote in a Wednesday research note. They noted that the highest risk is for electric vehicles, hydrogen, residential solar, and storage.

Residential-solar companies like Sunrun and Sunnova Energy are some of the most exposed, considering they rely heavily on IRA tax credits for cash generation. Sunrun, for one, made roughly $110 million in tax-credit sales in the past year. 

In 2022, President Joe Biden signed the Inflation Reduction Act, which introduced a slew of tax credits that are transferable, meaning developers can sell them for cash. Trump has slammed what he’s called “The Green New Deal” in speeches, promising to “rescind all unspent funds under the misnamed Inflation Reduction Act.”

If Trump does manage to repeal the IRA, that would mean the renewable-energy industry would lose a central source of capital. Total renewable-energy tax-credit monetization for 2024 is on track to exceed $40 billion, according to Crux, a financial-services company that facilitates tax-credit deals.

Crux is one of several platforms that have emerged to match buyers and sellers of IRA tax credits. Erik Underwood, CEO of Basis Climate, another tax-credit brokerage, noted that much of the investment from the IRA has been in red districts.

“The benefit that we have here is that on a local basis, people are saying ‘these jobs are good for my community,’” Underwood said. 

Still, the Jeffries analyst said, “A full IRA repeal is generally unfounded regardless of who wins,” but a partial repeal may be on the table. He said the next federal budget proposal, wherein a Trump administration would include its proposed household tax cuts, could be where clean-energy subsidies get chopped.

Some Republicans have warmed up to the tax credits. House Speaker Mike Johnson said that if anything happened to the IRA it would be with a “scalpel and not a sledgehammer.”

John Berger, CEO of Sunnova, projected confidence on an August call with analysts. 

“Regardless of party, I think that you should be supportive of what the IRA is doing,” he said. “And behind the scenes, politicians of both stripes are exactly that. So I don’t listen to the noise.” 

How the IRA created a booming tax-credit market 

A Trump overhaul may have been priced in by investors in the bonds and equity markets, but the tax-credit market was showing no signs of slowing down before Election Day. According to tax-credit brokerages, deals are reaching new records this year. 

“I’ve not seen a slowdown,” Jenny Speck, a partner at Vinson & Elkins, told Sherwood in late October. “In fact, we are very busy with investors who are looking at tax credits.” 

Tax credits have always been an important part of raising capital for renewable-energy companies. In the past, the only way a company could monetize their tax credits was by entering into complicated equity agreements with investors. 

That meant buyers were typically only large banks or insurance companies who could invest tens of millions of dollars. The IRA made tax credits transferable, simplifying the process and allowing smaller buyers — many of them corporate entities — to enter the market.

“What we’ve seen is the floodgates open in terms of many, many different types of buyers from all different types of industries now purchasing credits,” said Andy Moon, CEO of Reunion, a clean-energy tax-credit brokerage. 

It has also allowed smaller developers, who don’t have large equity stakes to hand out, to monetize their credits.

Joseph Stadlen runs a commercial and agricultural real-estate company in Florida that built a solar project that provides energy for their properties. His company reached out to about 30 different lenders and none had loans for a $2 million solar project. 

Banks offered loans for individuals putting panels on their roofs or bigger developers asking for around $10 million and up, but he found his business was lost between these two markets. “Financing does not exist, not for me,” Stadlen said. 

But the IRA made it possible for him to sell $600,000 in clean-energy tax credits to investors. He did it through Basis Climate, one of the tax-credit brokerages, marking one of their smallest tax-credit deals.

“We’re not just chasing the $100 million deal; we're also chasing the $1 million or $500,000 deals,” Underwood said.