Episode Details

Our expert panel explains whether the US election will impact energy policy, including how the Inflation Reduction Act’s possible fate and increased tariffs could transform the sector.

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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.

David Arcaro: I'm Dave Arcaro, Morgan Stanley's US Power and Utilities Analyst.

Andrew Percoco: And I'm Andrew Percoco, the North American Clean Tech Analyst here at Morgan Stanley.

Michael Zezas: And today we're discussing another key election related topic that generates a lot of political and market debate: Energy policy.

It's Thursday, October 17th at 10am in New York.

The outcome of the 2024 election will likely determine the direction of U.S. climate policy for years to come. David, what are the key focus areas for investors as they evaluate the various election outcomes on the utilities and clean energy industries?

David Arcaro: Yeah, Mike, investors are highly focused on the Inflation Reduction Act, the IRA, especially as it pertains to the election and the clean energy space. This was a law that was passed in 2022, and it really has supportive policies across the entire clean energy spectrum. It's got tax credits and incentives for solar, wind, offshore wind, green, hydrogen, nuclear, you name it. Battery storage. And some of those tax credits go all the way to 2032 and beyond in some cases.

So, it's a very supportive policy when it comes to the clean energy industry and the growth outlook. So, the big question is what's going to happen to the Inflation Reduction Act – depending on which administration is in place following the election.

Our core view is that the IRA stays in place; that the core wind, solar storage and nuclear tax credits all remain, regardless of the outcome of the election. And then separately, investors are focused on tariff policy as it pertains to clean energy. It is a global industry. A lot of the equipment and materials are imported around the world. And so, any changes to the tariff approach could have an impact on the space as well.

Michael Zezas: Got it. And so how does the outlook for renewables change under different election outcomes?

David Arcaro: Yeah, really, the outlook for renewables growth is not very different in our view, regardless of the outcome of the election.

We think it's a strong growth outlook either way. And part of that is because we've got policies that we expect to stay in place that will be supportive regardless of the outcome, as I mentioned with the Inflation Reduction Act. And then we've also got demand. It's a very strong demand backdrop for the renewable space – and that's because in the electric industry, we're seeing an inflection in electricity usage across the US.

It's been stagnant for years and years, but now with data center growth, with industrial production accelerating, and manufacturing and onshoring, we're seeing a big change in the growth outlook for electricity usage. And that means we need more power plants. We need more to be built, and renewables are going to be the predominant new resource for producing electricity in the US.

Some of these companies like data centers, they want renewables to power their operations. And most utilities, electric companies that are building power plants, they're going to be using renewables more than anything else. There are impediments to building fossil plants, it's challenging to permit and there's supply chain delays and issues.

So, we think there's a very strong growth outlook for renewables based on that demand and the policy support going forward, regardless of the outcome.

Michael Zezas: And Andrew, how about