One Big Beautiful Bill: Another ride on the solar coaster?

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Taylor Kuykendall:

Welcome to Energy Evolution, the Energy Transition Podcast brought to you by S&P Global Commodity Insights.

I'm your host, Taylor Kuykendall. In today's episode, we will look into the implications of the One Big Beautiful Bill Act, that's a sweeping budget reconciliation bill which US President Donald Trump signed on July 4th. Now, the OBBBA unwinds core pieces of the Inflation Reduction Act, a major energy and climate law that was enacted by Democrats nearly three years ago. The tax policy and spending package cleared the US House of Representatives on a 218 to 214 vote on July 3rd with no democratic support, after narrowly passing the Senate two days earlier. Two House Republicans voted against the measure.

Now, Trump campaigned in part on repealing the Inflation Reduction Act that was former President Joe Biden's signature 2022 climate law. Independent climate policy think tank Energy Innovation has estimated the bill will result in the loss of 340 gigawatts of expected US power generation capacity by 2035. Now, revision to the IRA's existing tax credit regime will effectively curb the bill's 45Y and 48E clean electricity production and investment tax credits. Our correspondent, Camilla Naschert will take you through the details with some of our Commodity Insights experts on this topic.

Camilla Naschert:

So today, we are joined by Tiffany Wang and Cinthya Pena, research analysts in the climate and sustainability team at S&P Global Commodity Insights. Welcome both.

Tiffany Wang:

Thanks Camilla. Thanks for the introduction.

Cinthya Pena:

Thank you, Camilla. Happy to be here.

Camilla Naschert:

So, could you start by setting the stage for us? How does this new bill affect the appeal of renewables in the US and what really was its purpose?

Tiffany Wang:

Of course. So the one big beautiful Bill Act was passed in July 2025, and has weakened the attractiveness of renewables in the US. One of the stated intentions of the bill was to essentially encourage domestic manufacturing and supply chain resilience for clean tech in the US. And as such, the bill introduced stricter rules on sourcing of key components for renewables, as well as accelerated expiration dates on key tax incentives for renewables introduced in the Inflation Reduction Act.

A key new restriction that comes with the One Big Beautiful Bill Act are definitions around foreign entities of concern and their involvement in clean energy projects, which impacts eligibility for various credits.

Camilla Naschert:

Yeah, the credits, they're one of the big components that the industry is thinking about now. Could you explain what is happening to project-level tax credits, which of course were introduced in the Inflation Reduction Act? And what are the different impacts for developers on the one hand and then manufacturers of clean tech?

Tiffany Wang:

So, before I get into the weeds on the changes to the key tax credits, it's helpful to outline what the key tax credits are available for clean tech.

In terms of the scope of what we're talking about today, there were three main types of tax incentives outlined in the IRA that were impacted. You have the ITC or the investment tax credit, which is a tax credit offered as a percentage of a project's capital investment costs. This is typically claimed by project owners or developers when the project is placed in service. You also have the production tax credit or the PTC, a tax credit based on energy produced and sold per kilowatt-hour. Similar to the ITC, this is also claimed by project owners and developers, except this is claimed when the electricity is produced or sold. And last but not least, we have the 45X advanced manufacturing production credit, and this is a per-unit tax credit for domestic manufacturing of certain clean tech components. This one is typically claimed by manufacturers when a unit is produced in the US.

So, in terms of changes to these credits for the ITC and the PTC, these are the project level tax credits. There's no change in value or timeline for battery project credits. However, we are seeing reduced value and shoring phase-out schedules for PV and wind credits. If a PV or wind project starts construction before July 2026, they will have a four-year safe harbor deadline to place the project in service. However, if a PV or wind project starts construction after July 2026, they would need to finish construction by end of 2027 to qualify for incentives, which is effectively impossible or very, very difficult to do. For 45X or the manufacturing incentives, there's no change in value or timeline for solar and batteries, but wind manufacturing incentives are eliminated after 2027. A key caveat that I mentioned earlier were around the foreign entities of concern restrictions, and these FEOC restrictions on both the project level tax credits and manufacturing credits take effect starting January 2026.

I'd be remiss to mention one last issue that is kind of on top of mind for a lot of project developers, and that is a recent executive order that was released July 7th, that threatens the short-term opportunity window with potential changes in guidance around defining what start of construction, as well as the four-year construction safe harbor means. Historically, start of construction has been defined as either physical work of a significant nature when the taxpayer pays 5% or more of the total project costs, but now essentially with this executive order, the Treasury has the ability to redefine what sort of construction means. And they could make that a more stringent rule, which would make fewer projects able to successfully "start construction" and qualify for incentives. This could limit the number of projects developed over the next few years.

Likewise, the safe harbor period for projects has historically been four years, but the executive order weaves interpretation for what safe harbor could be defined as up for grabs as well.

Camilla Naschert:

You mentioned, Tiffany, these FEOC restrictions in this bill as one of the key factors. Can you tell us a little bit more about those? And as I understand, there's different implications for wind versus solar, and then again versus storage?

Tiffany Wang:

Yes, definitely. So, FEOC restrictions are definitely the most interesting new development that's come about with the One Big Beautiful Bill Act, and essentially, FEOC restrictions are placed on two types of entities. You have your specified foreign entities and your foreign influence entities. A specified foreign entity is essentially a company that is explicitly named in connection to China, Russia, North Korea, or Iran, or are connected to those governments in some way. Your foreign influence entities are a company where you have a specified foreign entity that is making a significant influence on the company, either through ownership, leadership, or financing.

So based on that, there are two types of restrictions that are placed on either specified foreign entities or foreign influence entities. You will see restrictions on direct eligibility for credits, as well as for material assistance for credits. In terms of direct eligibility for credits, neither specified foreign entities or foreign influence entities can claim any sort of tax credit. While they cannot claim the tax credit, they can still sell hardware use in clean tech. The second layer, which is that material assistance layer, is that the bill essentially places limits on how much of manufacturers or developers' direct costs come from these specified foreign entities or these foreign influence entities. They have to essentially hit what's called a material assistance cost ratio, and that starts in 2026 for those trying to qualify for incentives. Not to get too much into the weeds here, as the material assistance cost ratios differ across technologies and for different incentives, but to qualify for any of these incentives, you basically have to ensure that you are above a certain ratio of non-FEOC content, with the ratio increasing year-over-year.

When we're looking in terms of the impacts across different technologies, obviously the impact varies. On the whole, FEOC restrictions for incentives are toughest on the battery developers and battery manufacturers in the US, since the battery supply chain is still super tied to China. This makes it quite difficult to qualify for incentives, despite the fact that batteries have a longer runway period for credits compared to solar and wind. While there's very little battery cell manufacturing capacity in the US at the moment, the continuation of these incentives could still help to grow domestic cell supply. So it's not an end-all be-all, but there's opportunity for slowing EV demand that could also help to grow the battery cell supply for battery energy storage, because essentially cells that would've been used to supply EVs can now be shifted to supply battery energy storage. While the runway time for incentives for PV and wind are shorter, they tend to have more diversified supply chains and will be less impacted from these FEOC restrictions.

Solar has definitely enough non-Chinese capacity at all the critical nodes of their supply chains for manufacturers to continue to qualify for 45X. And wind had the least dependent supply chain on China of all the technologies, but early phase-outs for the 45X incentives could see canceled wind manufacturing passing the US.

Camilla Naschert:

That's really interesting, also this sort of interplay between EV and large-scale storage batteries. Thank you so much, Tiffany.

And Cinthya, you have been looking at the renewables implications, and the report that you guys have been writing on this issue has been emphasizing this delay in implementation, and that then opens up a window of opportunity for renewables players to get projects over the line. Are you expecting a rush on development and warehousing of these clean tech components?

Cinthya Pena:

Yes, definitely. More like delay in implementation is the deadlines that Tiffany mentioned. So before 2025, projects have to start construction based on the previous definitions, either the physical construction or the safe harboring rule. So we expect that a lot of projects are going to try to meet that deadline to allow for a tech neutral components.

So, we're definitely going to have a big year in 2026 regarding installations, especially as the ones rushing 2025 finish constructions and some of the ones planned for 2026 also finish construction in time, as well as the ones rushing in 2027 to meet the last deadline for wind and solar. But there's a tricky part of this with these timelines, which is what Tiffany mentioned, that if the definition for what start of construction means changed, a lot of projects are not going to be able to do this rushing and acceleration of the project timelines because they can vary greatly between interconnection regions and especially regarding the size of the project. So, it's very difficult to meet the project timelines and to rush projects if you do not have the capital to safe harbor. So small developers are going to be the ones that are going to be hit harder.

Camilla Naschert:

That's really interesting. Thank you so much both for that helpful overview of the OBBBA. And as we just heard, renewables companies are already responding and reacting to this bill, and we're also in the middle of second quarter earnings season. So there has been ample opportunity to feel the industry's pulse on the topic, and that's exactly what our senior reporter Garrett Hering has been doing the past couple of weeks. He's joining us as well. Hi, Garrett.

Garrett Hering:

Hi, Camilla.

Camilla Naschert:

So Garrett, what are executives at utilities and manufacturers saying about the impact of this bill on their businesses?

Garrett Hering:

Well, it's been an earning season so far like no other. It's been such a period of policy volatility. I mean, I've been covering the sector for well over a decade and the level of pivot going on is pretty unprecedented, but at the same time really, I'm hearing a lot of, the more things change the more they stay the same. Companies are optimistic about their portfolios despite the new law, despite the regulatory headwinds, despite the tariff uncertainty. Solar and batteries and wind will continue to lead US capacity additions for at least the remainder of this decade. But depending on who you ask, well beyond.

Some of the biggest companies in this sector have reported already. You've got NextEra, you've got AES, I mean, these are two of the biggest bellwethers for the US power sector as a whole. Because they both operate regulated utilities and they have pretty big, actually very big competitive generation arms that supply power plants to other utilities, so they really have a feel for the entire US power market. Increasingly, they're also supplying power to hyperscalers, and both of those companies pointed to the continued strength of their renewables and battery storage pipelines and businesses for the next several years.

Other renewable equipment suppliers that have reported so far have also pointed to those comments that, for example, NextEra CEO John Ketchum made, he called the bill tough but constructive. He also said that NextEra is firmly aligned with the Trump Administration's energy goals, but it's going to take all forms of energy, and what's first in line is renewables and storage. They're ready now. There's supply chain issues that are much more challenging for gas, for example. Renewables, solar, wind storage can't provide the electricity and capacity that all these hyperscalers and utilities have already ordered here for the next several years. So, NextEra Energy Resources added an additional three plus gigawatts of new renewables and storage to its backlog in Q2, and their backlog is 30 gigawatts of clean power. And so, they think they're well positioned.

And so there's a bit of a schism that I'm hearing in terms of this is catastrophic, the sledgehammer came down, but this industry does not sound like it's been destroyed. It's regrouping, that's for certain. AES had comments a little bit similar to NextEra's. They see their backlog as strong. They've got eight gigawatts, that six gigawatts that they plan to have built by the end of 2027. And wind and solar projects dominate their backlog, I think they've got another 30% of their backlog is storage. They think they've eliminated potential impacts from tariffs. They feel well positioned from a safe harbor perspective.

And then you've got equipment suppliers like First Solar. First Solar was really called the winner of the IRA, and a lot of analysts said First Solar is really the number one company that is benefiting from the tax credits in the IRA. And it sounds like, even though they say they're not immune to the trade policy and some of the challenges, they think on balance that the policy changes, the trade developments have really strengthened their position. And First Solar is unique, in that they are US-based, they've got a unique technology. They're not dependent on the crystalline silicon supply chain that other companies are that is more complex. They're a thin film company, and so they've got a unique business model.

That said, I think it's really notable that First Solar is feeling so strong about things. They added more than two gigawatts to their backlog in July alone after this bill passed. So, I think that's fairly telling of also customers. Some of their customers apparently had agreements with Chinese suppliers and some of those agreements are not moving forward, and First Solar is benefiting from some of these policy shifts both on trade and energy. So, that's really surprising. I think that the solar industry just sees itself chugging along despite all of these headwinds.

I mean, Nextracker for example, another equipment supplier. Nextracker supplies largely US-made, I think they've got a 100% US made tracker now that they supply to companies like NextEra. They even pointed to NextEra's comments on its call to support their thesis that solar remains, in the words of one executive, an unstoppable force. So they think solar is going to be this enduring story that's going to continue to power through all of these headwinds on the policy front. And their management team has been around for quite some time. They have been on the solar-coaster, as people like to call it, or as people have called it. And that's this uncertainty about policy. They have ridden the roller coaster of uncertainty for many years and here they are saying it's just going to continue, it's up and to the right. They're saying their backlog is strong, their bookings reflect that. And at the same time, I think it's fairly telling also that they have an international business as well, and they continue to plan expanding overseas.

And you have to take into consideration that Nextracker is supplying the utility scale market here. Companies who are specifically serving the solar residential storage market. That's a little more mixed. So it's a time of transition, but it's also a time when renewables companies, project developers, owners and equipment suppliers, they think they can stand up to this test, and it's a big one.

Camilla Naschert:

Thank you so much, Garrett. I mean, as so often, the details around winners and losers behind policy are often more nuanced when you read below the headlines, and you'll be covering this roller coaster, solar-coaster for us going forward so readers can stay on top of this story on our platforms. Thank you so much and yeah, we'll speak soon.

Taylor Kuykendall:

Thanks, Camilla. Yes, and absolutely this is a story that we'll be keeping tabs on. Listeners, that's it from us this week. Thank you so much for tuning in. Please stay up to date with upcoming episodes by subscribing to Energy Evolution on your podcast platform of choice. If you have any ideas for guests or topics, you can always email us at energyevolution@spglobal.com. Also want to take a moment to recognize the Energy Evolution podcast team, that includes Eklavya Gupta, Camilla Naschert, Karen Willenbrecht, and Dan Testa, as well as our agency partner, the 199, and the Commodity Insights digital content team. We'll be back next week with more Energy Evolution.