Tax credits, AI boom lift First Solar, Brookfield Renewable to outperform indexes
Eid Broughton is not an environmental investor. The 46-year-old in California owns petroleum stocks. But he likes long term growth, which is why in 2020 he bought $20,000 worth of shares in Brookfield Renewable Corporation, a company that acquires and operates global renewable energy assets. He now wants to invest more.
President Donald Trump’s anti-renewables policies? “I don’t care,” he said. “The economics, the finances, just work out.”
Trump has called wind and solar energy “the scam of the century” and gutted Biden-era renewable sector tax credits, but the sector is holding its own. A few well-placed renewable energy companies are even outshining the strong performances of the S&P 500 and the Nasdaq.
The S&P Global Clean Energy Transition Index, which tracks around 100 large renewable energy companies, grew 25% in the year to September 11. Standout companies include Brookfield Renewable Corporation and First Solar, which have increased their value by 22% and 15% respectively.
Trump’s rollback of the Inflation Reduction Act has not been as abrupt or deep in cutting tax credits for industrial renewable projects as feared, while domestic demand and macroeconomic trends are favorable. Companies in domestic production and those that own assets in solar, hydro, and nuclear in particular are doing well, as they benefit from import restrictions on Chinese solar components and the energy demands from data centers.
“The renewable energy sector has had a Herculean rally this year overall, on Trump being much better for the sector than people assumed,” said Gordon Johnson, CEO and founder of GLJ Research.
“Despite Trump’s rhetoric around solar being bad and not needing solar, in reality, he’s been a huge proponent and champion for solar,” he said.
Although Trump wanted subsidies for industrial solar and wind projects be terminated rapidly, Congress and Senate modified the budget bill to allow up to four years for developers to access “legacy” tax credits, as long as they begin construction by July 4, 2026. Offshore wind and projects on federal land have a 10-year grace period. Small-scale solar will not face restrictions, and hydro and nuclear energy is largely unscathed.
Treasury guidance that followed in August was also considered “fairly workable,” by many analysts. Solar and wind stocks soared on the news.
Import restrictions due to come in at the end of the year against Chinese solar components is also boosting domestic manufacturers like First Solar.
In times of political opposition, companies focus on cutting costs and strengthening their balance sheet by prioritizing cash flow and the highest returning projects, according to Eagle Global’s research. Negative expectations around Trump policies have benefited renewables investors.
Mike Cerasoli, portfolio manager of the $2.5 million actively-managed TrueShares Eagle Global Renewable Energy Income ETF at Eagle Global says this year has been “phenomenal.”
“You’re starting at a very attractive rate with a management philosophy that is about protecting cash flows and giving it back to investors,” he said.
The AI boom is playing to the sector’s advantage too.
In July, Brookfield Renewable announced a contract to provide Google with up to 3,000 megawatts of hydroelectric capacity, in what they touted as “the world’s largest framework agreement” for hydroelectricity. Its stock price jumped 6% to $35.31 on the day.
“They have really what data center customers want, which is around-the-clock clean power,” said Brett Castelli, equity analyst at Morningstar. Nuclear and hydro power, which Brookfield Renewable owns and operates, are seen as matching those needs.
“The market has overlooked the benefits to renewables, because the demand that we’re talking about here is so large that you’re going to need every technology,” he said.
The macroeconomic environment is expected to help too. Because solar installation is mainly financed by debt, cheaper borrowing costs as interest rates come down are seen as a positive.
“Renewables are quite sensitive, more sensitive to interest rates than other power generation technologies,” Castelli said.
Some are concerned the recent run up has outpaced the fundamentals.
Castelli feels recent valuation boosts have “maybe run a little bit too far.” Robust demand will continue for solar, but “likely at a slower growth rate than what it has experienced in the past couple of years,” he said.
But with the better-than-expected tax credit grace period, he said “the focus of the industry in our view over the medium term, is really to take advantage of this runway for these tax credits largely through the end of the decade.”
The exception to the rosy picture is wind energy. The government ordered several major offshore wind projects to halt construction, which according to Bloomberg analysis is putting 15,000 jobs at risk. Companies like Orsted saw stock prices drop as their project in the U.S. faced uncertainty. When a judge overturned the stop-work order on Monday allowing Orsted’s project to resume, its stock price jumped.
The exact way in which the Trump administration limits imports of Chinese components like solar panels and batteries from the end of the year could still impact the industry too. But the efforts to stymie the renewable sector in favor of hydrocarbons may have ended up proving that renewables are an essential part of the mix for the U.S.
In 2024, solar installation accounted for 61% of utility-scale electric-generating capacity added, according to the U.S. Energy Information Administration. This year it is expected to make up 50%.
Broughton in California feels confident that renewables will continue to grow. Living in California, he sees renewables are an essential, complementary component of the energy mix.
“It won’t just survive the Republican renaissance of the hydrocarbon industry,” he said. “I think it might thrive despite it.”