Fears about the adverse impact the Trump administration will have on the renewable energy sector in the US may be overstated, with a few key points to analyse, says Schroders Investment Insights in a Jan 21 note.
Less than a day has passed since Trump’s return to the White House on Jan 20, yet several “shock and awe” executive orders have already been signed in place. On the sustainability front, Trump has declared a “national energy emergency”, and pledged to pull out from the Paris Agreement.
Yet, David Boyce of Schroders’ private markets group says that there are few caveats to bear in mind when assessing the impact that Donald Trump’s second term in office could have on the renewable energy sector.
For one, “campaign rhetoric rarely translates directly into federal action,” says Boyce. He notes that with the energy transition, in particular, it has always been the case that pledges politicians make on the campaign trail do not track with the action they take once in office.
While Trump has often expressed support for oil and coal industries during his campaign trail, and vowed to end subsidies for alternative energy sources, Boyce says that campaign promises cannot be viewed as a blueprint for legislative or regulatory policy.
“Until executive orders are issued or legislation is introduced, any projections of what the new administration will do are purely speculation,” he says.
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In the past, including the period of Trump’s previous administration, legislation to support renewable energy had strong bipartisan support — a reality reflected in the two states that are leading the energy transition in the United States.
“One is California, a state where politicians and voters have embraced renewables. It may surprise some to discover that the other state is Texas,” says Boyce.
Although its leaders and residents are considered to be strong advocates of traditional energy and opponents of supporting renewables with public funds, Texas stands right alongside California as a leader in the buildout of renewable energy capacity. Economic considerations often win out over political ideology, especially with sectors as critical as energy, Boyce notes.
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Next, the Inflation Reduction Act (IRA), which supports the energy transition in multiple ways, is not likely to be repealed, although it may be amended. This is due to a number of reasons, including that Republican states greatly benefit from it, says Boyce.
The IRA contains key tax subsidies that foster energy production from renewable sources like wind and solar, and bolsters manufacturers in the supply chain for renewables.
Boyce notes that while members of Congress who are deficit hawks or opposed to government support for renewables may help propel some reduction of the IRA’s tax subsidies, those intentions will have to be balanced against the need to avoid rolling back the considerable stimulus the IRA provided for the economy.
“Republican politicians’ constituents have been prime beneficiaries of that stimulus. Since the IRA passed, much of the economic investment (coming from new plants and the rising property tax revenues they create for local governments) and job creation has been in “red” states controlled at the federal and local levels by Republicans,” he adds.
With their “America-first” approach and Trump’s plan to impose tariffs, Republicans are unlikely to eliminate the incentives that support domestic job creation and supply chain manufacturing, notes Boyce.
That said, Boyce adds that many anticipate that the investment in new technologies that support the energy transition may be cut, and the duration of various tax subsidies, some of which the IRA scheduled to keep in place until at least 2032, may be shortened.
Finally, Boyce says that cost considerations and companies’ commitments to sustainability will continue to drive the demand for clean energy.
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With the accelerating pace of electrification in multiple sectors, and the power-hungry AI revolution, local utility providers will increasingly rely on renewables to meet that demand. And, given how cost-competitive wind, solar and battery storage is compared to fossil fuel, Boyce believes that this will not curb the demand for clean energy.
Yet despite all these, a few harsh truths may be “unavoidable”, says Boyce. Higher tariffs will have a negative impact on the solar sector, in particular, given that Chinese manufacturers are key suppliers of solar panels and the components used in panels and solar storage technology.
“Still, solar energy providers learned some lessons from the tariffs imposed during the previous Trump administration, and they have shifted some of that economic burden to both their suppliers and their customers who have contracted to receive power from them,” Boyce notes.
Also, the industry expects the Trump administration to loosen the regulations on fossil fuel emissions which could extend the lives of some coal assets.
Boyce says that the more likely scenario is that relaxed fuel-emission standards will foster the build-out of natural gas generators.
Offshore wind projects, which President Trump has often criticised, may experience slowdowns in obtaining the environmental permits they need to proceed. If the new administration holds true to the President’s promises to reduce staffing at regulatory agencies, the permitting process for any type of renewable power project will likely see significant delays.
As such, Schroders says that it is a “mixed-bag”, but not a worst-case scenario with what might happen to the renewable energy sector under Trump 2.0.
