Citi expects 10 percent upside in shares of independent power producers (IPPs) if Donald Trump wins the presidential election. This implies a Trump presidency would be a negative for renewable energy stocks, at least in the near term.
A Trump Presidency
Tina Fordham, Citi's political strategist, still believes Hillary Clinton will win, but the probability of victory has decreased from 75 percent to 60 percent. This implies a “non-negligible” risk of a Trump victory.
Trump has expressed skepticism on global warming and support for fossil generation, and his potential presidency could slow down the pace of renewable engine growth.
“While we don’t think he can reverse the trend of increasing renewables or the challenges for coal, he surely could slow down renewables penetration. Any slowdown in renewable will likely extend the economic asset life of IPPs’ existing asset bases,” analyst Praful Mehta wrote in a note.
Assuming about a five-year increase in asset life, Mehta’s target prices for Calpine Corporation CPN, Dynegy Inc. DYN and NRG Energy Inc NRG would increase by 10.5 percent, 38 percent and 9 percent, respectively.
The base price targets for these stocks are $19, 13 and $11, respectively. The estimated increase could boost their target prices to $21, $18 and $12, respectively.
Solar And Wind
According to the EIA, without implementation of the Clean Power Plan (CPP), solar and wind capacity development could be 26 percent and 15 percent lower by 2040 versus the base case. In other words, base solar and wind capacity could increase to 156GW and 146GW. Without implementation of CPP, solar and wind capacity could increase to only 115GW and 124GW, respectively, by 2040.
Trump wants to revive the coal industry for which he would need to overturn the EPA’s Mercury and Air Toxics Standards (MATS) rule, which led to the closure of 50 GW of coal-based power plants since 2011.
Although a Trump win can't bring these plants back, he may oppose subsidies for renewable energy, effectively slowing the pace of renewable growth. However, it would be tough for Trump to stall the billions of renewable energy projects that are underway across the United States, thanks to the extended tax credits for solar and wind energy projects in late 2015.
Potential Stocks Under Pressure
Nevertheless, a potential Trump presidency would pressure stocks such as Tesla Motors Inc TSLA, First Solar, Inc. FSLR, Canadian Solar Inc. CSIQ and Sunrun Inc RUN.
There also some lesser known clean energy stocks that may witness downward movement on potential Trump win on negative sentiment. They include Pattern Energy Group Inc PEGI, Enviva Partners LP EVA, TerraForm Global Inc GLBL, Renewable Energy Group Inc REGI and Ameresco Inc AMRC.
But, If Trump Loses
On the other hand, if Clinton wins, it could boost renewable energy stocks. Clinton targets to generate enough renewable energy to power every home in America within a decade and for 25 million homes to have rooftop solar by 2020.Image Credit: By Gage Skidmore from Peoria, AZ, United States of America (Donald Trump) [CC BY-SA 2.0], via Wikimedia Commons
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