Climate Bill Stands to Give Green-Energy Investors a Lift

Source: By Amrith Ramkumar, Wall Street Journal • Posted: Sunday, July 31, 2022

Proposed Senate spending package would boost clean-tech companies and could make nascent technologies, like green hydrogen and carbon capture, viable

Renewable-energy companies like First Solar, in Perrysburg, Ohio, where a worker built solar-panel frames, got a welcome boost from the proposed Senate energy package.PHOTO: MEGAN JELINGER/REUTERS

Investors were already returning to clean-tech and renewable-power stocks when the proposed $369 billion Senate energy and climate-spending package jolted the sector to its best week in 18 months.

Private investors who continued to pour cash into speculative industries like green hydrogen and carbon capture during the stock-market downturn earlier in the year would be among the biggest beneficiaries of tax subsidies that are part of the bill. Renewable energy and battery producers would get the certainty of tax credits that would last for a decade, which they say will encourage investment.

The iShares Global Clean Energy ETF rose nearly 15% for the week, buoyed by gains in companies like solar-panel manufacturer First Solar Inc FSLR 12.06%. and hydrogen producer Plug Power Inc PLUG -1.34%. It marked the best week for the sector since its peak in January 2021, when clean-tech stocks soared along with everything from cryptocurrencies to meme stocks like GameStop Corp GME 0.50%.

Bellwether stocks such as electric-vehicle maker Tesla Inc. and utility NextEra Energy Inc. also rallied. Stocks like these were already rebounding because of a drop in government-bond yields amid expectations that interest rates would start falling next year. Rising costs, high valuations and supply-chain snarls have buffeted clean-energy stocks in the past year.

“I’m breathing a sigh of relief,” said Veronica Zhang, a deputy portfolio manager at the investment firm VanEck and who helps run its environmental sustainability fund. “It’s a significant shift from all the doldrums we’ve been dealing with.”

The proposed bill put forth by Senate Majority Leader Chuck Schumer (D., N.Y.) and Sen. Joe Manchin (D., W.Va.) turbocharged the rally because it included tax incentives aimed at channeling billions of dollars to wind, solar and battery-storage projects that put clean power onto the grid in the U.S. Subsidies for electric vehicles are seen as another force that could boost Tesla and other green stocks.

Big investors including the top private-equity firms and players focused on green energy have increased their stakes in promising startups despite the industry downturn. Some firms are sitting on big, newly raised funds and targeting industries from established solar developers to battery startups.

The bill was designed to expand the country’s energy independence with provisions to increase fossil-fuel production and to bolster domestic supply chains for products like batteries and solar panels.

The Senate bill turbocharging a clean-tech rally contains tax incentives to benefit battery, solar and wind projects in the U.S., similar to this big onshore wind farm near Glasgow, Scotland. Photo: Danny Lawson/Zuma Press

If the bill passes, First Solar would evaluate expanding its U.S. manufacturing, Chief Executive Mark Widmar said on the company’s Thursday earnings call. First Solar, which is building new plants in Ohio and India, said previously that uncertainty about U.S. tax and tariff policy had made it challenging to make domestic investments. Shares ended the week up more than 35%. Other solar companies that either make parts or install projects, such as Enphase Energy Inc. and SunPower Corp., also surged.

The spending bill could provide the biggest boost to speculative industries that produce hydrogen using renewable energy and capture carbon. The bill would provide funding to producers of hydrogen—which is seen as a potential replacement for fossil fuels in some industries—with the most cash going to technologies that produce the least emissions.

Efforts to produce green hydrogen and to remove carbon from the atmosphere have for years failed to become economical and to reach the scale necessary to limit climate change.

Most hydrogen is produced today from natural gas for uses in chemical refining and to make ammonia, a key input for fertilizers. Many big fossil-fuel companies have proposed capturing the carbon from those operations to lower the emissions. Others such as Plug Power hope to produce so-called green hydrogen by using machines called electrolyzers that run on renewable power to split water. Plug Power’s shares rose more than 20% this week.

The bill would help keep jobs in states including Wyoming, New Mexico and Sen. Manchin’s home state of West Virginia that would otherwise have gone overseas, the Australian billionaire and mining magnate Andrew Forrest said through a spokeswoman. The renewable-energy unit of the Australian mining company he founded, Fortescue Metals Group Ltd., has proposed U.S. clean hydrogen projects that would repurpose infrastructure previously used for coal power.

Both hydrogen and carbon capture are favorite green projects for fossil-fuel producers because they either use their infrastructure and know-how, or reduce emissions from the burning of their products. The bill would give tax credits to carbon captured from existing operations, removed directly from the air and stored, with the biggest ones going to companies that permanently store the carbon and with other credits for reusing the carbon. Scientists say vast amounts of carbon capture and direct removal from the air are needed to limit global warming despite worries that the practices could extend the use of fossil fuels.

Some clean-energy executives in areas like energy storage said they have already been getting more inquiries from potential customers and partners since the bill was introduced.

“It is a really important signal to the market and companies like ours,” said Geoff Brown, CEO of Portland, Ore.-based battery-storage company Powin LLC, which recently privately raised $135 million from investors including Singapore’s sovereign-wealth fund.

—Jenny Strasburg contributed to this article.