This morning I was informed that Senate Majority Leader Harry Reid and House Majority Leader Nancy Pelosi have reportedly decided to remove the federal renewable portfolio standard [RPS], as well as all tax provisions benefiting renewables from the proposed US Energy Bill. Thus, I recommend selling Covanta Holding Corp. (NYSE:CVA) and locking in gains until the issue has been decided.
The issue matters because if the federal tax credits for renewable energy are gutted from the bill, no projects will receive financing until tax credits are guaranteed. Thus, the entire industry will come to a halt (like it did a few years ago when the credits were allowed to expire before being renewed).
Legislators say they will deal with the tax credits and RPS next year, but the simple act of creating an unknown will have the practical effect of destroying the sprouting renewable energy companies in solar, wind, biomass, and more. Moreover, nothing gets done in an election year, so financiers will be even more skeptical about funding clean energy projects.
I hope the Democrats do not sell out the entire renewable energy industry, but I cannot afford to bet on politicians. I will keep you updated as things proceed.