What happened
Thursday was a good day for alternative energy stocks across the board as a bill that would provide major support to clean energy moved closer to passing Congress. Senate Majority Leader Chuck Schumer and Sen. Joe Manchin (D-West Virginia) have agreed on a major compromise bill dubbed the Inflation Reduction Act of 2022 that includes -- among many other things -- $369 billion to promote clean energy through direct spending and tax credits. Investors saw this as an extremely bullish sign for the industry.
The biggest renewable energy asset owner in the U.S. is NextEra Energy(NYSE: NEE), and its stock jumped as much as 7.3% in trading on Thursday. Hydrogen company Ballard Power Systems(NASDAQ: BLDP) popped by as much as 18.8%, while electric vehicle charging companies Blink Charging(NASDAQ: BLNK) and ChargePoint(NYSE: CHPT) were up as much as 13.3% and 19.9%, respectively.
So what
There are a lot of details in the 725-page bill, but the most important items for these specific companies are:
- A $7,500 tax credit for buyers of new electric vehicles. The bill also eliminates the previous cap for manufacturers.
- A $4,000 tax credit for lower- and middle-income buyers of used electric vehicles.
- $30 billion in grants for states to accelerate their transitions to cleaner energy.
The goal of these provisions and others is to provide incentives for manufacturers and buyers of electric vehicles (EVs) and spur demand. Even for companies like Blink Charging or ChargePoint that won't benefit from direct subsidies, encouraging the adoption of EVs should provide incremental increases in demand for their chargers and the services they provide.
The grants for accelerating the energy transition could benefit companies like Ballard Power, which makes hydrogen fuel-cell products for forklifts and other small industrial vehicles.
NextEra Energy, which is spending billions of dollars on renewable energy projects, will experience big benefits, both from direct tax credits on projects it builds and lower costs on those it buys from developers.
Now what
Optimism about the bill's prospects pushed stocks related to alternative or renewable energy higher, but not every company will benefit. Solar, wind, and electric vehicles seem to be the clear targets here with additional tax credits and manufacturing subsidies in the bill. Charging was not directly called out, although there's funding that could indirectly flow to the industry.
I do think utilities like NextEra will be some of the biggest beneficiaries because the shift toward a cleaner energy future will mean an increase in electricity usage and infrastructure investment in the industry. That's where utilities make their money.
While subsidies won't make or break alternative energy companies, they definitely provide a tailwind that should push some companies toward better profitability. That said, I think Ballard, ChargePoint, and Blink Charging face serious challenges in their businesses due to competition and a lack of differentiation. NextEra Energy is the one stock in this group worth buying now because it looks to be a clear long-term winner in renewable energy.
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Travis Hoium has the following options: long January 2023 $15 puts on Blink Charging Co. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
