U.S. President Joe Biden's Inflation Reduction Act (IRA) includes "extremely favourable" provisions for utilities and renewable power firms, including those listed in Canada with assets south of the border, according to Scotiabank Global Equity Research.
Biden signed the roughly US$700 billion legislation into law on Tuesday, a major milestone for the administration's previously stalled climate agenda. The bill includes US$369 billion in public funding for energy security and climate change over the next decade, the single largest climate investment in U.S. history.
Solar, wind, and other clean energy stocks have rallied since the sweeping legislation was announced in late-July. The iShares Global Clean Energy ETF (ICLN), a US$5.6 billion basket of clean energy stocks, has added more than 23 per cent in the past month.
"Clearly, immense private-sector environmentally-conscious investments are expected on the back of this legislation," Scotiabank analyst Justin Strong wrote in a research note on Wednesday. "This opportunity to multiply climate impact with private investment pushes ESG (particularly 'E') investment back to the forefront."
The passage of the IRA comes as U.S. officials expect renewable sources to account for a growing share of the nation's power supply. On Tuesday, the U.S. Energy Information Administration said electricity generation from renewable sources, such as hydropower, wind, and solar, accounted for 20 per cent of U.S. power generation both in 2020 and 2021. The agency expects that figure to rise to 24 per cent in 2023.
Among Canadian utilities, Strong sees Algonquin Power & Utilities (AQN.TO) benefiting from the production tax credit and investment tax credit in the IRA. While Algonquin is headquartered in Ontario, the bulk of the company's revenue comes from its U.S. operations.
Strong also sees upside for Canadian companies looking to build out renewable assets in the U.S. These include Innergex Renewable Energy (INE.TO), Boralex (BLX.TO), Brookfield Renewable Partners (BEP-UN.TO), Capital Power (CPX.TO), Northland Power Inc. (NPI.TO), and TransAlta (TA.TO).
Additionally, the analyst notes Montreal-based sustainable gas supplier Xebec Adsorption (XBC.TO) stands to benefit from the expanded tax incentives for clean hydrogen, hydrogen vehicles, and renewable natural gas.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.