Clean energy related stocks have been the clear winners of the Inflation Reduction Act (IRA). Solar panel makers, fuel cell manufacturers and energy storage companies all stand to benefit from the measure.
Solar and wind energy stocks have been rallying since the bill was announced in late July. A large number of these equities are up double digit percentages year-to-date. They have far outperformed the broader markets.
The IRA focuses on providing production tax credits for companies to manufacture items like solar panels and wind turbine parts in the United States. The bill also calls for credits of up to $7,500 for electric vehicles assembled in the United States.
“There are many facets of this bill but, EV’s and clean energy we think are going to be the two main winners based on where the dollars are being allocated,” Blackrock’s US head of thematic and active equity ETFs Jay Jacobs recently told Yahoo Finance Live.
“I think it’s really going to be felt across the entire value chain. It’s not going to be one winner. We think that there’s going to be many winners in this space,” he added.
Solar companies like Sunrun (RUN) and First Solar (FSLR), as well as energy storage and software companies like Stem (STEM) are seen as just some of the beneficiaries of the bill. STEM is up 93% since the measure was announced in late July.
“This pushes our path to profitability up six months into early 2024,” Plug Power’s CEO Andy Marsh highlighted on Yahoo Finance this week.
The bill “really has changed the landscape for both our company and others,” he added.
Plugpower’s stock is up more than 80% over the last month.
Wall Street analysts have been upgrading clean energy stocks over the last couple of weeks.
Solar panel maker First Solar and wind blade manufacturer TPI Composites (TPIC) are just two of the companies which stand to receive tax credits for production that comes out of their U.S. plants. JPMorgan recently upgraded both of those stocks to Overweight. TPIC is up 37% year-to-date, while FSLR is 35% higher since the start of 2022.
The impacts of the bill, however, won’t be felt overnight, said Rob Barnett of Bloomberg Intelligence.
“It is going to provide a demand boost for a lot of technologies: EVs, wind, solar, batteries, hydrogen. There’s goodies in there for anybody looking at the clean energy space, but none of it is overnight. This bill is going to unfold over the course of 5 to ten years,” he said.
As for some of the stocks which have skyrocketed the most in the last month, Barnett said, “I think from a demand perspective the fundamentals look good. But if you’re looking at traditional valuation metrics, they’re very stretched for a lot of these companies.”
He added, “Over time, we see these sort of names growing very quickly. So can you be comfortable with a high valuation if the growth is there? That’s the kind of calculus you’re going through if you’re looking at the solar space right now.”
Ines is a markets reporter covering equities. Follow her on Twitter at @ines_ferre