Sunrun's Regulatory Resilience: Navigating Tax Credit Uncertainty in the Solar Sector

The renewable energy sector faces a pivotal crossroads as President Trump's July 7 Executive Order and the One Big Beautiful Bill (OBBB) reshape the U.S. solar landscape. While the policies aim to curb subsidies for wind and solar projects, they also create a stark divide between near-term risks and long-term opportunities. Among the companies navigating this terrain, Sunrun (RUN) stands out as a resilient player poised to capitalize on competitors' missteps and structural shifts. Here's why investors should pay attention—and consider buying the dip.

The Regulatory Gauntlet: Phasing Out Solar Subsidies, but Not All Hope

The OBBB imposes a 2026 deadline for solar projects to begin construction to qualify for tax credits, with a final in-service deadline of 2027. For projects starting after 2026, tax incentives vanish entirely. Simultaneously, the EO tightens Foreign Entity of Concern (FEOC) restrictions, mandating that projects avoid foreign ownership ties (e.g., Chinese-backed entities) and prioritize domestic supply chains.

The immediate impact? A race to meet construction timelines and sourcing requirements. Projects relying on foreign suppliers or delayed permits now face a steep cliff. For example:
- Solar panels requiring critical minerals (like lithium) from FEOC nations must now meet 40%-60% domestic content thresholds by 2030.
- The Treasury's revised “beginning of construction” rules could disqualify projects that relied on cost-based “safe harbors” under prior law.

Why Sunrun Can Weather the Storm (and Even Thrive)

1. Grandfathered Projects and Safe-Harbor Flexibility

Sunrun has already secured $4.2 billion in projects under construction by December 31, 2024, which are exempt from the OBBB's phase-out rules. For newer projects, the company is leveraging IRS-approved “safe harbors,” such as paying 5% of total costs, to lock in tax credit eligibility. This ensures most of its pipeline meets the 2026 deadline.

2. Supply Chain Diversification Ahead of the Curve

While rivals scramble to rework supplier contracts, Sunrun has long prioritized domestic manufacturing partnerships. For instance:
- The company's collaboration with First Solar (FSLR) for thin-film panels reduces reliance on Chinese polysilicon.
- Its recent deal with Tesla (TSLA) to integrate energy storage systems positions it to benefit from the OBBB's 2035 tax credit phase-out for storage, which lags behind solar/wind cuts.

3. Competitor Bankruptcies Could Fuel Market Share Gains

Smaller solar firms with thin margins and foreign supply chains are likely to buckle under the new rules. Sunrun's scale and liquidity—$1.2 billion in cash—allow it to acquire distressed assets or snap up talent from failing competitors. This dynamic could accelerate its path to achieving its 500,000 customer target by 2027.

The Undervalued Opportunity: Buy the Dip Before the Rally

Sunrun's stock has been volatile since the OBBB's passage, dipping to $25/share from a 2024 high of $42. Yet the fundamentals suggest a compelling entry point:
- P/E Ratio: Sunrun trades at 15x forward earnings, far below its 30x average valuation in 2022, even as its cost of capital declines.
- Competitive Moat: Its 30% market share in residential solar and $3 billion backlog are defensible against weaker peers.

Investors should also note the 2027 tax credit cliff's silver lining: The rush to complete projects before deadlines could drive Sunrun's revenue to $1.8 billion in 2026, up from $1.2 billion in 2024.

Risks to Consider

• Treasury Guidance Delays: The EO's requirement for the Treasury to issue rules within 45 days (by August 22) could introduce uncertainty. If “substantial construction” is interpreted narrowly, some projects may lose credits.
• Supply Chain Hiccups: Even with partnerships, domestic solar material shortages could delay timelines.

Final Take: A Strategic Buy at $25

The OBBB and EO are a short-term tax credit squeeze, but Sunrun's adaptability, scale, and focus on domestic supply chains position it to dominate a shrinking, more regulated market. At current valuations, the stock offers a 20% upside to its 2023 average of $30/share, with further gains likely as competitors falter.

For investors seeking resilience in renewables, Sunrun is the play to own now—before the next wave of consolidation reshapes the sector.