The renewable energy industry will eventually adjust to building wind and solar projects without US tax credits, but the sector — and the supply of new electricity generation coming to market — will shrink significantly, developers and experts said.
Budget reconciliation legislation enacted July 4 terminates the Inflation Reduction Act's Section 45Y clean electricity production credit and Section 48E clean electricity investment credit for those projects, reversing landmark incentives that kick-started billions of dollars of investment.
Wind and solar projects that begin construction within 12 months of the bill's enactment would receive 100% of the tax credits' value and would receive a safe harbor allowing them to keep full credit eligibility, provided the projects enter service within four years. All other wind and solar resources would have to enter service by the end of 2027 to qualify for the credits.
"The legislation is not good for renewables, and it's not good for the electricity industry," Kevin Smith, CEO of Arizona-headquartered solar and energy storage developer Arevon Energy Inc., said during an interview.
"There's going to be some destruction in the market, so there's no question that with the volatility and changing of rules that some investors will exit it," Smith said. "There will certainly be some consolidation and there's already talk of that in the market."
While fewer megawatts will come online, offtakers will pay higher prices for projects that do proceed, and they will pass those costs on to customers, Smith emphasized.
Analysts at Guggenheim told clients July 7 that the industry should reach a point "during the next few years" where building utility-scale wind and solar is viable without production and investment tax credits.
"A post-subsidy world will likely see higher [power purchase agreement prices] for renewables, lower equipment margins and no more generous tax equity returns for banks, but all of those are issues that can be solved, and they're already reflected in equity prices as well in our view," they noted.
Carl Weatherley-White, interim CFO of independent power producer and investment manager Greenbacker Renewable Energy Co. LLC, said in an interview that developers "will be working very hard" to lower equipment, design, engineering and labor costs to "make up for the shortfall" the lack of tax credits represents.
Near-term project pipeline
In the meantime, developers are focusing on projects that will meet the deadlines imposed by the budget law. Projects that begin construction in the first half of 2026 will have until the end of 2030 to be completed to qualify for 100% tax credits for the life of the asset.
"We're less worried about delivering on our commitments to customers over the next two to three years," said Tom Starrs, vice president for government and public affairs at EDP Renewables North America LLC, a Houston-based division of global renewables developer EDP Renováveis SA. "I think we're a little more worried about the implications of the bill beyond that."
Starr declined to specify how much equipment EDP Renewables has safe harbored.
Arevon's Smith noted that the company has "more than 2 GW [of projects] in advanced construction right now" and "several thousand megawatts of projects that would qualify for start of construction."
There are also projects on which construction started in 2024 before technology-neutral production tax credits and investment tax credits replaced solar- and wind-specific tax credits.
"We have a very large project that is grandfathered under the 2024 tax credit, and I know there are many, many others like that," Greenbacker's Weatherley-White explained.
Over 20,000 MW of US wind and solar projects already under construction are expected to begin commercial operation by the end of 2025, with another 10,000 MW anticipated to come online in 2026, according to S&P Global Commodity Insights data.
Nearly 44,500 MW of projects that are fully permitted or financed, meanwhile, are expected to begin operating in 2026.
Executive order uncertainty
An executive order signed by President Donald Trump on July 7 — directing the US Treasury Department to revise rules for renewable energy projects seeking tax credits — injected further uncertainty into the industry.
Array Technologies Inc.Trump gave the Treasury secretary 45 days from the July 4 enactment of budget reconciliation legislation to consider issuing new guidance "to ensure that policies concerning the 'beginning of construction' are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built."
The order is "another sort of gut punch" to the wind and solar sector, Nicole Elliott, a partner at Holland & Knight who previously worked for the Treasury Department, said in an interview.
"It is not a feasible deadline to get to final regulation … if what people are thinking is that Treasury and [Internal Revenue Service] could promulgate final rules that have the full effect of law," she said. "I suspect what is being planned for the beginning of construction part of the executive order is simply an IRS notice," which does not require a public comment period or have the full force of effect of law.
According to existing Treasury guidance, projects that reach the start of construction can either "incur" at least 5% of the total cost or start "physical work of a significant nature" at the project location on parts that qualify for an investment tax credit.
Washington Analysis senior energy analyst Rob Rains wrote July 8 that the executive order language likely implies raising that 5% threshold "to much higher."
Both Rains and Raymond James investment strategy analyst Pavel Molchanov told clients that if the Treasury tightens what start of construction means, the industry could challenge any changes in court.
Trump's executive order also calls on the Treasury secretary to take "prompt action" to implement the budget law's toughening of foreign entity of concern rules for renewable energy projects.
Under the legislation, wind and solar projects that begin construction after 2025 but within the 12-month safe harbor time frame must limit the percentage of materials they can source from countries such as China. That poses a particular problem for solar projects, as China is the world's main supplier of many solar components.
Implementing those rules would be a "monumental exercise" to complete in 45 days, according to Holland & Knight's Elliott.
Arevon's Smith, Greenbacker's Weatherley-White and EDP Renewables' Starrs all emphasized that the executive order creates even more volatility.
"It throws a big wrench into everything," Weatherley-White said.
