Trump's new tax regulations for the clean energy industry are not as stringent as expected, leading to a surge in solar stocks

The Trump administration announced new eligibility guidelines for clean energy business tax credits on Friday, leading to a significant rise in clean energy stocks. Media analysis suggests that the new regulations are not as stringent as the industry had originally feared.

According to the new regulations, residential solar systems can still apply for tax credits based on previous guidelines, and the new rules will not be applied retroactively. For large-scale commercial projects, however, they must meet the "substantial construction" standard, but still have a four-year development period.

"This is much better than expected," said Phil Shen, a clean energy analyst at Roth Capital Partners, who added that the changes are overall just minor adjustments.

Driven by this news, Sunrun Inc., the largest residential solar installation company in the U.S., saw its stock price rise by as much as 42%, closing up 32.82%. The company reported second-quarter results that exceeded market expectations on Friday morning, prompting institutions to raise their target price for the stock. SolarEdge Technologies Inc., a provider of residential solar equipment, rose nearly 28% at one point, closing up over 17%. NextEra Energy Inc., the largest developer of solar and wind energy, rose 5% at one point, closing up 4.41%. NexTracker Inc., a solar equipment supplier, rose nearly 13% at one point, closing up 12.21%.

Industry Impact Lighter Than Expected

Media reports indicate that this new initiative is a continuation of an executive order previously signed by Trump, which required the U.S. Treasury to tighten tax credit eligibility and marked an escalation of the ongoing crackdown on wind and solar energy. The U.S. government's regulatory actions also include a new round of permit reviews for Department of the Interior projects and the cancellation of a large wind farm project in Idaho. This comes at a critical time of surging electricity demand in the U.S., especially with the rise of data centers powered by artificial intelligence, which could lead to power supply shortages.

Under the large-scale tax and spending bill signed into law by Trump on July 4, solar and wind projects can receive tax credits as long as construction begins within 12 months.

Previously, developers could qualify for credits as long as they invested at least 5% of the funds into the planned project. The new regulations eliminate the "5% expenditure" qualification standard for large projects, instead requiring developers to provide proof of "substantial ongoing construction activities." However, for small solar facilities not exceeding 1.5 megawatts, the 5% cost expenditure standard can still be used to apply for credits.

Analysts stated,

"There were concerns that this rule would make the transition provisions for tax credits very difficult to use, but now it seems quite straightforward, which is especially good news for residential and small commercial solar companies."

According to data compiled by the media, there are currently over 2,500 announced but unstarted wind and solar projects in the U.S., with a total generating capacity equivalent to about 383 nuclear reactors, all of which could be affected by the new regulations Rhone Resch, CEO of the renewable energy project risk management consulting firm Advanced Energy Advisors, told the media,

"This is not the end of the world; this regulation actually benefits those companies with more mature and professional development progress. Smaller developers may struggle to meet the requirements within the specified time, thus facing impacts."

Clean Energy Companies: Confident in Coping with Policy Changes, but Still Under Pressure

Large renewable energy developers express confidence in coping with this policy change. Executives from NextEra Energy recently stated that the company has enough projects that commenced construction before the passage of the Trump Act, allowing it to support its development plans until 2029. AES also stated that most of its reserve projects are not affected by the new regulations.

Nevertheless, these stricter requirements undoubtedly add another hurdle for the industry, which has already been under pressure due to the Trump administration's crackdown on solar and wind development on federal and private lands.

Abigail Ross Hopper, CEO of the Solar Energy Industries Association (SEIA), told the media,

"This is yet another 'energy subtraction' action by the Trump administration, which will further slow down the process of building affordable and reliable energy."

According to media predictions before the U.S. Treasury Department released new guidelines, due to the rapid elimination of tax credits for wind and solar energy, the annual new installed capacity of clean energy in the U.S. is expected to plummet by 41% after 2027