A blue wave on Tuesday is leading to a green one on Wednesday.
After two rough years for stocks serving the solar, wind and electric vehicle industries, Tuesday's resounding election night wins for Democrats are giving the industries some hope.
Clean energy stocks surged on Wednesday, with the Invesco Solar ETF jumping 9.6% in early trading. Top solar manufacturer First Solar jumped 12%, residential solar company Sunrun was up 10%, and solar equipment firm Enphase Energy rose 7%. Even beaten-down wind names were rising. Danish offshore wind developer Orsted rallied 6.2%.
Clean energy investors were thrilled -- and think this rally could continue.
"With some still quite undemanding valuations/expectations, I believe this can be sustained," wrote Shawn Kravetz, chief investment officer of Esplanade Capital, in an email to Barron's. "First Solar (which we own) is ripping today...and still down 20% year to date."
For now, this is a relief rally. While Democrats will control the House and Senate next year, pro-renewables legislation will still have to get through President Donald Trump, who can veto any bills.
Trump and the Republican Congress have made clean energy one of their biggest targets. They dismantled the Inflation Reduction Act, which had given clean energy companies tax credits to subsidize their projects. The Trump administration has also snarled clean energy projects in regulatory reviews, delaying them and even halting projects that were already under construction.
And Trump isn't the only problem for these stocks. High interest rates make renewable projects expensive to finance, and have severely slowed the growth rate for industries like rooftop solar.
The new Congress probably won't be able to pass new tax subsidies for clean energy projects, because of Trump's ability to veto legislation, according to analysts at research firm Wood Mackenzie.
Nonetheless, the election is a meaningful sign, and Trump may have to make some concessions on energy policy.
"For companies that have spent the past few years dealing with regulatory delays and shifting political priorities, a more supportive backdrop should provide some much-needed confidence around projects already under development," wrote Tancrede Fulop, senior equity analyst at Morningstar. Fulop also thinks state-level policies can help clean energy firms in places like Texas. (European renewable developers like German firm RWE are investing heavily there.)
Democrats may still be able to pass some laws that help clean energy. For instance, a bipartisan bill that would speed up approvals for both fossil fuel and renewable projects is already being discussed in the Senate and could pass in the current Congress -- or the next one. "Permitting reform has a path that other Democratic priorities do not," wrote analysts for research firm Wood Mackenzie.
Trump will still have the power to complicate plans for companies through the executive branch. The Department of Justice is currently trying to retroactively remand a permit for an offshore wind project called Revolution Wind that Denmark's Orsted and its partners have nearly completed off Rhode Island. But these kinds of efforts will face much sharper blowback once Democrats take control.
"Given that the Republicans now will have to negotiate with Democrats for everything, you may expect a softer tone for this kind of matter, including Revolution Wind," Fulop said in an interview.
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