Investing.com -- The Invesco Solar ETF (NYSE: TAN) fell over 12% Wednesday following Trump’s presidential win, with Deutsche Bank (ETR:DBKGn) analysts suggesting the election outcome could pressure solar stocks by scaling back incentives.
With Republicans now set to control both the White House and Senate, Deutsche Bank anticipates a shift in policy that may dampen sentiment across the solar sector.
According to Deutsche Bank, the new administration could scale back elements of the Investment Tax Credit ( ITC (NS:ITC)), specifically "adders" which increase incentives for low-income and domestic community solar projects.
These adders currently boost the 30% ITC by up to 10% for specific projects, but Deutsche Bank analysts warn that many of these could be rolled back under a Trump administration.
According to the bank, the solar companies most likely to be affected by the potential ITC changes are Sunrun (NASDAQ:RUN) and Sunnova (NOVA), both of which have high exposure to the residential solar market and stand to be impacted if incentives are scaled back.
"We see increased risks to RUN and NOVA due to their exposure to the ITC," the analysts wrote, noting that a rollback could cut into cash generation.
They add that the election outcome also presents moderate risks for Enphase (ENPH) and SolarEdge (NASDAQ:SEDG), which both rely on the residential solar market.
Enphase is said to be particularly exposed with about 70% of its revenue generated within the U.S. Meanwhile, First Solar (NASDAQ:FSLR), a company with greater exposure to commercial projects and significant benefits from production tax credits, may be less affected by the policy changes.
However, Deutsche Bank cautions that FSLR could experience some volatility before regaining stability.
While the analysts expect the administration’s policy shift could impact overall solar demand, they also predict that Trump’s pro-domestic manufacturing stance may ultimately favor companies like First Solar if tariffs are maintained or increased.