In recent weeks, I’ve been looking at the possible impact of a Trump administration on financials and healthcare. I thought I would round this up this week with a few thoughts on energy and climate change.

I think most of us have accepted that man-made climate change is real and there are ways we can avoid the worst of the consequences, but a bit like the vaccine sceptics that are cheering on Trump’s healthcare nominations, there is still a hard core of resistance to the idea (there’s probably a high degree of overlap on a Venn diagram).

Trump has made a point of ambiguity on the topic, but whatever he believes, his nominations include climate-change sceptic and fracking boss Chris Wright to the role of energy secretary; climate-change denier and fossil fuel advocate Lee Zeldin to head the Environmental Protection Agency (he is expected to slash regulations and jobs). For interior secretary (covering areas such as national parks) he nominated Doug Burgum, who will also lead a new National Energy Council tasked with maximising fossil fuel production. Trump will also likely withdraw from the Paris Agreement again, which he feels disadvantages the US.

It may be that Trump thinks lower petrol prices will help him retain the support of his base. However, I am not sure how he will explain away hurricanes, drought and flash flooding when he is the one in charge of the secret government weather machine.

Who’s in the firing line?

Joking aside, this clearly looks like bad news for a raft of companies that were benefiting from Biden’s more planet-friendly agenda. An obvious initial casualty has been US offshore wind, which is many years behind the UK (and, therefore, not cost-competitive, yet) but was showing promise. Wind turbine manufacturers’ share prices dived on the election result.

Harder to gauge is how fast the various initiatives supported by Biden’s Inflation Reduction Act (IRA) will be rolled back. Many Republican states have been big beneficiaries of IRA which includes tax credits for new solar and onshore wind installations, tax incentives for clean energy production and subsidies for electric vehicles (EVs). Higher tax credits were available for developments in deprived areas and using domestically-sourced equipment.

Tesla’s share price has soared, which might suggest investors feel that Trump’s antipathy towards EVs has mellowed since Musk bankrolled his election. However, if the IRA is scrapped, the only significant incentives for EVs may be in California, which could exclude Tesla from its scheme. Most fund managers seem to have been wary of holding Tesla in any case and are unlikely to chase it now, but it is still a top-10 holding for Scottish Mortgage (SMT ) and Baillie Gifford US Growth (USA ).

The two US renewable energy trusts – US Solar (USF ) and Ecofin Renewables Infrastructure (RNEW ) – have been struggling for some time and in RNEW’s case, have already thrown in the towel. RNEW just announced that it has banked the benefit of the tax credits associated with constructing the last of its portfolio of solar projects.

One trust that has yet to receive hoped-for tax credits is Gore Street Energy Storage (GSF ). There should be much to celebrate given the big contract win for its 200-megawatt Big Rock energy storage project in California that it hopes to energise this month. Its smaller 75MW Dog Fish project in Texas should be energised in February (after Trump’s inauguration).

At stake are $60m-$80m of investment tax credits associated with these projects, which are material in the context of a trust with a market capitalisation of £248m. Confirmation that this money is in the bank might help the shares that are stuck on a 53% discount. The battery fund has a pipeline of additional potential projects in the US that it might decide not to proceed with, but that is much less material to its net asset value.

SDCL Energy Efficiency Income (SEIT ) has about 60% of its portfolio in the US and its largest investment Red-Rochester, which accounts for 17% of its portfolio, runs onsite utility services for an industrial park in New York state, mostly on long-term contracts. It might not be much affected.

SEIT’s primary energy projects (17% of the portfolio) operate under long-term contracts. A very small amount (2%) of revenues are derived from sales of renewable energy certificates. It is possible that the rules around these could change. More vulnerable is Onyx (15%), an owner and developer of solar and energy storage projects. Revenues from existing projects ought to be fine, but projects under development and the development company itself could be hit by changes to the IRA.

VH Global Sustainable Energy Opportunities (ENRG ) has 28% of its portfolio in the US in the form of two liquid storage terminals. They store high-sulphur oil produced in Mexico before it is processed in US refineries to lower the sulphur content. Clearly, there is a risk that tariffs or other barriers to trade affect the economics of this.

Another trust that investors might think should be affected by Trump’s environmental and energy policies is Impax Environmental Markets (IEM ). Its discount has widened in the wake of the election, but the net asset value is actually up.

The rhetoric is very much about scrapping environmental protections to pave the way for growth but Impax’s themes around improving water quality and waste handling, the demand for sustainable food and agriculture (Robert F Kennedy Jr is a big fan of healthier food), and the embrace of digital infrastructure should be unaffected. Even in the area of renewable energy, the net-zero commitments of individual states and companies should survive the onslaught. 

One interesting stat to leave you with: over the period between Trump’s election in 2016 and his ousting in 2020, IEM’s share price jumped 84%.

James Carthew is head of investment company research at QuotedData.

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