Benzinga - by Surbhi Jain, .
As the 2024 U.S. Presidential election approaches, the energy sector stands at a crossroads.
Potential shifts in policy could significantly impact both traditional and clean energy markets.
According to insights from JPMorgan's Strategic Research team, the outcome of the election between incumbent President Joe Biden and Ex-President Donald Trump could lead to varying scenarios.
Each of these scenarios has distinct implications for investors and companies in the sector.
1. Biden Presidency, Split Congress
- Clean Energy: This scenario is seen as the lowest risk for the clean energy sector. A divided Congress would likely maintain the status quo, making it difficult to roll back or repeal the Inflation Reduction Act (IRA) incentives. This stability is favorable for companies relying on federal clean energy incentives. Under Biden, hundreds of billions of dollars were put toward incentives for green energy.
- Traditional Energy: The regulatory environment under Biden is expected to remain challenging, but stable. Companies have adapted to tighter regulations, which have not hindered record oil and gas output in the U.S. During Biden’s presidency, the U.S. set a record for crude oil production. In 2023, it outpaced what all other countries — including Saudi Arabia — have ever produced in one year.
- Clean Energy: This scenario raises the risk profile slightly. A split Congress would make it challenging to repeal IRA incentives; Trump — who rolled back more than 100 pro-environmental policies during his administration — will likely slow their implementation by reducing funding to relevant departments. He may also impact grant and loan spending.
- Traditional Energy: Trump — who vowed to be a dictator on “day one” so he can “drill, drill, drill" — could ease regulations, potentially increase access to resources on federal lands and reduce regulations, thereby supporting more exports.
- Clean Energy: This is considered the highest-risk scenario for clean energy. A Republican majority could partially repeal the IRA through a reconciliation bill, particularly targeting unspent funds. However, full repeal is unlikely due to significant investments in Republican states.
- Traditional Energy: The sector could benefit from reduced regulations and increased resource access. Policies encouraging more energy exports, such as LNG, could positively impact the long-term gas market.
Also Read: Enphase Stock Surges Amid Biden’s Tariff Boost On Chinese Solar Imports
Clean Energy Stocks
- Valuation and Sentiment: Clean energy stocks, including those in electric vehicle (EV) charging and green hydrogen, have lagged due to weak fundamentals. Election outcomes could exacerbate this trend, especially under a Republican sweep.
- Loan Programs: A Republican sweep might curtail the DOE Loan Programs Office's authority, negatively impacting companies seeking non-dilutive funding for capex-intensive projects.
- Subsidies and Tariffs: Potential downsizing or repeal of subsidies for EVs and tightening of charging incentives are risks. However, protectionist measures like tariffs on Chinese imports are likely to remain, regardless of the administration.
Traditional Energy Stocks
- Regulations: The Trump administration could ease regulations and increase resource access, but ongoing legal and political challenges could continue to shape the regulatory landscape.
- Refiners: Refiners might benefit from the continuation of Trump-era corporate tax cuts. However, geopolitical tensions, such as those in the Middle East, could pose risks to crude supply and impact refiner margins.
Utility and Renewables
- Regulated vs. Unregulated: Unregulated renewables are more sensitive to election outcomes, while regulated utilities are less affected. A Biden re-election could be a catalyst for renewables to regain ground lost in 2023.
- IRA Resilience: Core utility and renewable energy provisions of the IRA are expected to be resilient, though a Trump victory could create uncertainty until policy clarity emerges.
Utility sector investors such as those invested in the Utilities Select Sector SPDR Fund (NYSE:XLU), the Global X US Infrastructure Development ETF (NYSE:PAVE) or the Vanguard Utilities ETF (NYSE:VPU) must take note of such observation.
For those looking to get exposure to renewables, the ICLN, QCLN and PBW ETFs are popular capital market funds in the space.
Investment Considerations Investors should monitor the evolving political landscape as the election approaches. The potential for policy shifts under different election scenarios underscores the importance of a diversified portfolio.
As always, staying informed and agile in response to political developments will be key to navigating the energy sector’s challenges and opportunities in the run-up to the 2024 election.
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