The Death of Renewables! ($FSLR & $NXT)

07.07.25

In this piece, we’ll look at the “One Big Beautiful Bill” — a sweeping policy package that brings significant changes, both good and bad, to the renewables sector. Depending on who you ask, the effects could be seen as either positive or negative. In my view, however, it’s a net positive for domestic players in the solar supply chain. Companies like First Solar and Nextracker stand to benefit enormously from these provisions.

Key Energy Provisions:
The bill phases out several clean energy tax incentives at an accelerated pace. The $7,500 EV credit expires in September 2025, and the 30% residential solar tax credit ends by December 2025. Utility-scale solar and wind projects must begin construction by mid-2026 and be operational by the end of 2027 to qualify for any remaining credits.

At the same time, the Act imposes stringent “Foreign Entity of Concern” restrictions, effectively banning components sourced from countries like China, Russia, Iran, and North Korea. This is critical given China’s dominant position in solar panels (80%) and batteries (77%), making U.S. supply diversification both urgent and challenging.

On the other hand, fossil fuel interests benefit substantially through revived subsidies, reduced royalty rates, and mandates for new drilling and leasing — even in environmentally sensitive regions. The Congressional Budget Office estimates the Act cuts more than $559 billion in clean energy support over the next decade, while increasing the federal deficit by $2.8 trillion by 2034. The rollback of incentives is expected to cause widespread disruption, with over $22 billion in planned renewable investments already cancelled and an estimated 830,000 clean energy jobs at risk by 2030.

So why do I believe that, despite these constraints, domestic, high-quality solar businesses like First Solar (FSLR) and Nextracker (NXT) still stand to benefit?

1) For years, the biggest risk facing companies like First Solar and Nextracker wasn’t about the quality of their products or the health of the solar market. The market itself remains a secular growth story — even with tariffs and policy uncertainty, JPMorgan still expects high single-digit growth ahead. The real challenge has always been foreign competition. Chinese firms have dominated the industry by undercutting peers on price, making solar hardware look increasingly commoditized and easy to replicate.

With this new bill, two things are likely to happen:

• Higher production costs across the supply chain, some of which manufacturers will absorb, while passing part of it to developers.
• Market share consolidation, where leading domestic players hold their ground or expand share as smaller or foreign competitors struggle to meet sourcing requirements.

I recently spoke with an employee from HA Sustainable Infrastructure Capital Inc., who mentioned that when planning solar developments, even though some are publicly funded, most are still private transactions. Importantly, once developers pick a supplier and start a bidding process, they tend to stick with that supplier (as long as pricing remains competitive). It’s far more efficient from a project management standpoint. That loyalty builds natural stickiness into the system — once a player like FSLR or NXT becomes embedded, they’re very hard to displace.

2) Yes, the bill removes a lot of incentives, but the private sector continues to drive most large-scale project development — not necessarily because they want to, but because energy demand remains relentless. This isn’t just about “clean energy” anymore; it’s about affordable, available energy, period.

And where’s that demand coming from? Increasingly from hyperscalers — the tech giants building massive data centers to power AI and cloud infrastructure. These projects require enormous and stable power supply, and solar remains one of the most cost-effective sources available in the U.S.

3) Another point that is interesting is, the bill allows for full write offs of any investment in plants - hence the plants that FSLR is building right now gets a full write down, this is a massive incentive for such businesses.

FSLR's U.S. production facilities are reportedly sold out through 2028, with the company specializing in cadmium telluride (CdTe) thin-film solar modules that offer superior performance compared to traditional silicon panels - WSJ.

When you stitch these points together, it seems like an interesting opportunity given where both of these players trade today (below 20x normalized p/e): despite reduced incentives, the demand for domestic solar capacity isn’t going away. Meanwhile, FSLR and NXT’s competitive positioning improves, protected by domestic sourcing rules and supply chain integration.