The Trump tax cut plan reduces tax deductions, causing a sharp decline in U.S. solar stocks and an increase in nuclear power stocks

Trump's new tax cut bill has dealt a heavy blow to the clean energy industry, with more aggressive-than-expected subsidy cuts leading to a sharp decline in the photovoltaic sector.

On Thursday, Trump's tax cut bill passed narrowly in the Republican-controlled House of Representatives, causing U.S. renewable energy stocks to plummet. According to media reports, the bill seeks to end clean energy tax credits early, which were a core pillar of the Biden administration's Inflation Reduction Act (IRA).

The residential solar industry has been hit particularly hard. The original draft of the bill on May 12 cut tax credits for homeowners purchasing solar systems. The investment tax credit known as 48E was originally set to be phased out later, but the latest version of the bill accelerated the reduction of this commercial installation subsidy.

On Thursday, U.S. stocks closed with the Invesco Solar ETF, which is primarily composed of U.S. stocks, seeing its net asset value drop by as much as 10%. Sunrun, which heavily relies on 48E eligibility, plummeted nearly 40%, and even NextEra Energy, the largest renewable energy developer in the U.S., closed down 6.4%.

Analysts warn that green energy stocks may continue to decline. Manish Kabra, head of U.S. equity strategy at Société Générale, stated:

There are no clear catalysts or reasons to hold (U.S.) solar companies. Concerns are already present, and we are realizing that one of this administration's focuses is to eliminate green subsidies.

Nuclear stocks remain unscathed, investors turn their attention to the Senate

In this major shift in energy policy, fossil fuel lobbyists are celebrating the passage of the bill, with the American Petroleum Institute stating that it will help "restore U.S. energy dominance."

Notably, tax credits affecting the nuclear energy industry were exempted from cuts, and subsidies related to advanced manufacturing remained unchanged. Shares of Oklo, a small modular reactor company owned by Sam Altman, rose 8%, and after-hours reports indicated that Trump would sign a nuclear energy order, causing Oklo's after-hours stock price to soar an additional 18%.

Reports indicate that investor focus is now shifting to the Republican-controlled Senate. The Senate has the power to weaken some of the most aggressive cuts to clean energy incentives, and at least four moderate senators have expressed support for doing so. However, JPMorgan analysts speculate that investor pessimism towards the stock market may persist, as some House Republicans who were originally thought to support the bill have not stepped forward.

Analyses suggest that while the Senate may adjust certain provisions of the bill, clean energy advocates warn that the legislation could still lead to a severe downturn in the industry. This will be a significant policy turning point for the U.S. clean energy transition