Is Trump killing U.S. cleantech or making it great again?

What happened

On January 20, Trump commenced his second term with a series of executive orders addressing a broad range of U.S. policy issues, including energy, climate, and infrastructure. Among these, the "Unleashing American Energy" executive order paused the disbursement of grants and loans under the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) for a 90-day review. This freeze applies to both unallocated funds and pending disbursements, including major programs like the $7.5bn National Electric Vehicle Infrastructure (NEVI) initiative and $7bn for hydrogen hubs.

Additionally, a separate order, "Declaring a National Energy Emergency", highlights the need to address inadequate domestic energy resources and vulnerabilities in U.S. energy infrastructure. It prioritizes energy security and calls for expedited actions to boost energy production, transportation, and refining. The order emphasizes the importance of dispatchable energy sources, defining 'energy resources' to include crude oil, natural gas, uranium, coal, biofuels, geothermal, hydropower, and critical minerals, reflecting the administration's focus on securing stable and diverse energy supply, whether renewable or not.

The executive order also halted all new federal leasing for offshore wind projects and initiated a review of existing permits. Onshore wind projects requiring federal permits are similarly impacted, but the effect is expected to be smaller, as less than 5% of onshore wind projects are located on federal land. The nascent offshore wind market faces greater uncertainty, as it depends heavily on federal leasing for large-scale projects.

Further, the administration revoked the Biden-era target of achieving 50% electric vehicle (EV) sales by 2030, signaling a pivot away from direct support for EV adoption and infrastructure. The U.S. also formally withdrew from the Paris Agreement, marking a significant shift in U.S. global climate commitments. Other directives included rescinding federal efficiency standards for appliances and vehicles.

Impact on our Investment Case

Most impacted sectors

The executive orders' immediate effects are most noticeable in sectors heavily reliant on federal funding. Offshore wind development faces a significant setback. The moratorium on new federal leasing and the review of existing permits impact up to 25 GW of early-stage offshore wind projects, with the potential for further disruptions as developers await clarity. Even existing permits are subject to review, increasing uncertainty for companies like Orsted.

For electric vehicle infrastructure, programs like the NEVI and Charging and Fueling Infrastructure grants are paused, potentially stalling deployment timelines and affecting hardware suppliers such as Chargepoint and Blink Charging. The freeze also disrupts $7bn in clean hydrogen projects under the IRA, potentially delaying advancements in this nascent industry. These are U.S. sectors we don’t have direct exposure to, having strategically avoided them even before Trump’s election.

Tax credits remain untouched

While the executive order pauses direct funding, it does not affect the majority of IRA incentives, which are tied to tax credits. These include the Production and Investment Tax Credits (PTC/ITC) for renewable energy, as well as domestic manufacturing credits under Section 45X, particularly impacting U.S.-produced solar panels & components, and batteries. Additional credits for hydrogen, carbon capture, and energy storage investments also remain protected.

Indeed, tax credits are not tied to appropriations, meaning they do not require annual funding approval and cannot be altered through executive orders. Any changes to these credits would require legislative action, particularly reconciliation, which faces significant political hurdles. In August 2024, 18 House Republicans signed a letter urging the Speaker to protect these tax credits, recognizing their role in fostering innovation and creating jobs in their districts.
Given the narrow Republican majority in the Senate and the bipartisan support for these credits, we do not expect efforts to repeal them to succeed.

Moreover, we do not believe Trump would prioritize such changes, as his executive order reaffirms his support for U.S. manufacturing. We expect the key clean energy tax credits, especially those for manufacturing, to remain intact.

Favoring energy security and independence

The executive orders prioritize energy independence with a focus on bolstering domestic energy production and infrastructure development. This goes in line with what we expected in our Sustainable Future 2025 outlook. By defining energy resources to include oil, gas, coal, hydropower, biofuels, geothermal, and critical minerals, the administration underscores its commitment to dispatchable energy sources that ensure reliability and national security. This approach aligns with the "all of the above" energy policy framework, which supports a diverse mix of energy sources to meet U.S. demands and reduce reliance on foreign energy.

Solar energy is not explicitly mentioned in the orders, but the emphasis on critical minerals supports supply chains essential for solar panels and battery technologies. Trump has previously expressed support for solar, stating, "I’m a big fan of solar," during the 2024 presidential debate, suggesting it could play a role within the broader focus on domestic energy independence. Additionally, the administration’s trade policies, including potential tariff adjustments, could create a more level playing field for U.S.-based solar manufacturers, further enhancing their competitiveness against foreign imports.

How we position our portfolio

Our portfolio is well-positioned to navigate these changes. We continue to focus on domestic manufacturing, with companies like First Solar and Nextracker Inc set to benefit from both the IRA’s domestic manufacturing tax credits and the ITC/PTC domestic content bonuses. Grid infrastructure remains a key area of focus, as the national energy emergency highlights the importance of a reliable grid for supporting future technological innovation. This focus should benefit power grid service providers like MYR Group and MasTec, both held in our portfolio, and well-positioned to capitalize on infrastructure investments.

By avoiding high-risk sectors such as offshore wind, EV charging infrastructure, and hydrogen projects dependent on frozen grants, we reduce our exposure to uncertain regulatory changes. Our U.S. holdings (approximately 45%) are primarily allocated to grid infrastructure (~25%), domestic solar players (~10%), and politically agnostic sectors like water and HVAC (~10%). This strategic allocation ensures that our U.S. investments align with the administration’s priorities. On the other hand, we remind our investors that our China allocation (around 30% of the portfolio) is concentrated on market leaders that derive minimal or no revenues from the U.S., ensuring resilience amidst the complex U.S.-China relationship.

Our Takeaway

The executive orders represent a more nuanced shift than some might believe, with an emphasis on energy independence and bolstering domestic energy production. While the suspension of certain funding (grants and loans) and the focus on fossil fuels might seem concerning, we expect more clarity from Trump in the coming weeks. Specifically, we look for confirmation that support for U.S.-made energy solutions will remain a cornerstone of his administration, which could significantly reduce investor uncertainty and potentially catalyze a sector rebound.

Though Trump may not be a strong advocate for climate and environmental causes, his policies may actually turn out to be favorable for U.S. companies, including those driving innovation in clean energy. His protectionist approach, which emphasizes strengthening American manufacturing and reducing reliance on foreign supply chains, aligns well with our positioning, reinforcing opportunities for growth in select U.S. cleantech players.