While most of the stock market is on the rise, the renewable energy industry is taking it on the chin in trading today. Not only is there speculation that subsidies could be cut back, but higher interest rates may lower the opportunity for renewable energy projects.

Three of the biggest movers were First Solar (FSLR) falling as much as 19.7%, Fluence Energy (FLNC) falling 18.8%, and Brookfield Renewable Partners (BEP) down 9.5%. At the close of trading, the stocks were down 10.1%, 13.2%, and 6.1%, respectively.

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The subsidy question for solar energy stocks

The administration change coming in January will likely bring with it many policy changes, including the potential unwinding of some subsidies for the renewable energy industry. As part of the Inflation Reduction Act (IRA) there were massive subsidies given to companies manufacturing solar and energy storage products in the U.S., and if those go away it would be a huge negative for the industry.

To put the impact into perspective, First Solar said it would generate $1.48 billion to $1.54 billion in operating income in 2024, and $1.02 billion to $1.05 billion of that would be the benefit of Section 45X tax credits passed in the IRA.

These subsidies not only help the bottom line for renewable energy companies, but they also help make solar and energy storage more competitive against fossil fuels.

To be clear, there aren’t any changes to subsidies passed yet, but the market is speculating that changes may be coming.

Bonds take a turn

More consequential could be the reaction of the bond market to the election. 10-year U.S. government bonds saw yields jump by 16 basis points today to 4.43%, and yields are up 46 basis points in the past month.

If interest rates continue to rise, it will make it harder to finance renewable energy projects, which have high upfront costs and generate revenue or cost savings for decades.

It’s not clear if the trend for bonds will continue, but this could be much more impactful for future wind, solar, and energy storage developments than changes in subsidies.

An uncertain future for renewables

Administration changes often bring changes to the renewable energy industry, but the direct impact is often unlike what investors expect. Over the last four years, multiple positive policies were passed, but many solar energy stocks struggled and some companies even went bankrupt.

What we know is that renewable energy continues to get more cost-effective and has grown under a high-subsidy environment and a low-subsidy environment. I think that will continue, but that doesn’t mean renewable energy stocks will go up.

Investors should look for stocks with great values and durable competitive advantages that can win in any market. I think First Solar and Fluence are in for a tough few years, but a company like Brookfield Renewable Partners may benefit because it can take advantage of low-cost supply no matter where it comes from.

Today’s move is noise, but the policy changes coming will be real, and investors should expect to change how they’re valuing companies based on those changes.