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First Solar (NASDAQ:FSLR) has emerged as one of the biggest gainers in the long-suffering solar sector, jumping nearly 20% on Tuesday after a report that U.S. House GOP lawmakers have come up with a big tax and spending package that includes less extreme credit cuts for the solar and wind industries.

According to J.P. Morgan, the revealed portions of the budget reconciliation bill are bullish for solar, wind and geothermal power providers, noting that production and investment tax credits were truncated from their current definitions, but were left unchanged through 2028, after which they will be gradually phased down until 2032.

J.P. Morgan analyst Mark Strouse says the proposal is a "significant positive" for First Solar, considering that 45x credits will contribute ~60% of the company's estimated earnings over the next two years, adding that limitations on foreign entities are likely to provide a key competitive advantage. First Solar has now gained 43.9% over the past 30 days.

First Solar also benefited from a ratings upgrade by Wolfe Research to Outperform with a $221 price target, good for 16.6% upside. Whereas the House’s proposal shortens the 45X runaway by a year, Wolfe analyst Steve Fleishman thinks investors' fears over Congress killing the Inflation Reduction Act tax credits have been largely allayed. Fleishman says First Solar is set to earn $10B from 45X credits, or ~$92/share, noting that the company's moat in the domestic market remains intact. First Solar is the sole large-scale domestic solar module manufacturer in the United States.

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Shares in solar equipment manufacturers Array Technologies Inc .(NASDAQ:ARRY) and Nextracker (NASDAQ:NXT) have also perked up, jumping 29.2% and 23.2%, respectively. However, shares of Complete Solaria (NASDAQ:SPWR)--formerly SunPower-- and Canadian Solar (NASDAQ:CSIQ) have gone in the opposite direction, extending their losing streak thanks to their ties to international supply chains as well as large exposures to the residential solar segment that has come under more pricing pressure.

Unfortunately, the nuclear and EV industries have not been as lucky. The House committee has proposed a quicker phaseout for nuclear energy production credits and other power sectors, “Nuclear has been bipartisan and was expected to be intact, so the phaseout is one of the most adverse surprises from the draft,” analysts at Jefferies said, they said, noting its a big negative primarily for Constellation Energy Corp. (NASDAQ:CEG).

Further, congressional Republicans have proposed to kill the IRA’s $7,500 tax credit for EV buyers at the end of this year. However, customers of manufacturers who have sold less than 200,000 EVs will continue to qualify for the credit until the end of 2026. And on Thursday, the Trump administration said it planned to audit around $15 billion in grants handed out to power grid and manufacturing supply chain projects under the Biden administration.

Last month, the U.S. Department of Commerce announced anti-subsidy and anti-dumping duties against Chinese solar manufacturers for dumping solar panels in the U.S. at artificially low prices. The Trump administration imposed steep duties on solar imports from Vietnam, Malaysia, Thailand, and Cambodia, with the finalized tariff expected to take a heavy hit on JinkoSolar (NYSE: JKS ) and Trina Solar. And now China’s solar sector could come under further scrutiny after a report emerged that rogue communication devices have been found in Chinese solar power inverters.

According to the Reuters report, rogue communication devices have been found in Chinese solar power inverters hooked up to grids, posing significant security issues. According to the experts, rogue communication devices can be used to skirt firewalls and switch off inverters remotely, damage energy infrastructure, destabilise power grids and trigger widespread blackouts.

" We know that China believes there is value in placing at least some elements of our core infrastructure at risk of destruction or disruption ," Mike Rogers, a former director of the U.S. National Security Agency, told Reuters. " I think that the Chinese are, in part, hoping that the widespread use of inverters limits the options that the West has to deal with the security issue ."

China has, however, denied any wrongdoing, " We oppose the generalisation of the concept of national security, distorting and smearing China's infrastructure achievements," a spokesperson for the Chinese embassy in Washington told Reuters.

That said, trade tensions between the world’s largest economies dissipated after President Donald Trump slashed tariffs on Chinese exports to the United States from 145% to 30% while Chinese tariffs on U.S. imports fell from 125% to 10%. Chinese imports fell to the lowest level in five years, with the March figure clocking in at $28 billion, representing a 5%Y/Y decline.

By Alex Kimani for Oilprice.com

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