The Guggenheim Solar ETF (NYSEArca: TAN), the largest ETF dedicated to solar stocks, finished slightly higher Wednesday, extending its run of surprising performance in the face of potential headwinds from the Trump Administration.
Year-to-date, TAN is up about 45%, making it one of the best-performing non-leveraged industry ETFs, but some solar stocks fell yesterday amid speculation that President Trump’s tax reform package could eliminate an important solar industry subsidy.
“The still-unreleased proposal is expected to include significant tax cuts, prompting the government to seek places to make up the lost revenue. One potential target may be the federal investment tax credit for solar power, Colin Rusch, a New York-based analyst at Oppenheimer & Co., said in a research note Wednesday,” reports Bloomberg.
A number of bullish factors have supported the rebound in solar stocks, including continued strong overall world demand for solar, especially from India, Latin America, the Middle East and Southeast Asia; greater demand for solar power due to increasingly competitive price of solar, compared to alternatives as countries seek to meet carbon-reduction targets under the Paris climate agreement; and continued low valuations, relative to pricier U.S. large-caps, according to MAC Solar Index, the index provider for the underlying benchmark of TAN.
Related: Big Growth Seen for Solar Industry, Solar ETF
The industry subsidy, known as the ITC, “offers owners of solar systems a tax credit worth 30 percent of their systems’ costs, and both companies would be adversely affected if it was reduced or eliminated. Wind and solar have been the fastest growing sources of U.S. electricity since 2014, spurred by federal tax credits. The credits are scheduled to be mostly phased out in the 2020s,” according to Bloomberg.
The clean energy sector found support under President Barack Obama as the administration pledged to fight against global warming and climate change through heavy subsidies into green technology. However, Trump, who called climate change a hoax perpetrated by China, pledged to cancel last year’s Paris climate agreement and remove Obama’s Clean Power Plan, could reverse years of supportive alternative energy policies.
TAN’s year-to-date performance is all the more impressive when considering oil prices are plunging. Previously, solar stocks have risen when oil prices do the same because expensive oil renews calls for cheaper energy alternatives. TAN has not finished higher on an annual basis since 2013.
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