BLOG — Oct. 22, 2025
How the Budget Reconciliation Package Reshapes the US power sector: 5 critical takeaways
By Steve Piper
The passage of H.R. 1, the “One Big Beautiful Bill Act,” represents a turning point for the US power sector. Developers, investors, and utilities face accelerated timelines, shifting project economics, and heightened market volatility. Tax credit eligibility windows are closing, and fossil fuel assets are regaining prominence. S&P Global recently provided a comprehensive analysis of these changes in the webinar, Impacts of the Budget Reconciliation Package on the US Power Sector.
Explore the top 5 takeaways from our webinar and discover how we can help you navigate these changes.
1. Clean Energy Tax Credits: The Countdown Accelerates
The H.R. 1 bill significantly shortens the window for wind and solar tax credits, requiring projects to begin construction by July 4, 2026, or to be operational by the end of 2027 to qualify. Previously, eligibility extended through 2032. The shift from a 5% expenditure rule to the “more stringent physical work of a significant nature” requires developers to demonstrate substantial on-site progress rather than rely on upfront financial outlays. Katherine Nelson (presenter) said this change is driving a rush in solar installations, with developers front-loading capacity additions into 2026 and 2027. Foreign entity restrictions have disrupted supply chains and delayed solar panel procurement, increasing pressure on project timelines. Battery storage and nuclear technologies retain eligibility for tax credits through 2032, providing those segments with a longer development runway.
Based on our Q2’2025 baseline and H.R.1 scenario forecast, solar capacity is expected to increase in the near term as developers flood the market while the Production Tax Credit (PTC) is still available. By 2035, wind and solar generation will decline significantly, replaced by gas, both combined cycle and peaking, coal, battery storage and hydro. Many retirements are reversed; in particular, coal is staying online longer and generating more—significantly more than our Q2’2025 baseload forecast.
2. Generation Mix: Fossil Fuels Steady, Renewables Slow
The compressed tax credit window has triggered a near-term surge in solar capacity, but fossil fuels are projected to reclaim market share by 2035. Gas generation remains above 30% of total output, while the decline in coal generation slows, settling at 8.3% of the mix under H.R. 1 compared to 6.9% in the baseline scenario. Wendy Wen (presenter) said that by 2035, combined cycle gas output is projected to be 6.2% above the baseline, increasing its nationwide generation share to about 27%. Coal output, previously expected to decline, rises nearly 4% in 2030 and jumps 18% by 2035 above baseline, as fewer coal plants retire and existing assets become more valuable. Wind and solar continue to grow in the near term, but their expansion slows significantly after 2027, with the share of solar peaking between 2028 and 2031 before declining as tax credits expire.
3. Energy Prices: Regional Spikes Signal New Risks
The loss of tax credits for renewables results in fewer low-cost resources entering the market, increasing energy prices, particularly in regions with aggressive Renewable Portfolio Standards (RPS). The largest increases are in the Northwest US, where prices rise by 7.4%, in the Basin with a 7.0% increase, in CAISO by 9.0%, and in Colorado/Wyoming, which faces a 9.3% increase by 2035. ISO-NE experiences a slight decrease of 0.2%, reflecting its unique market dynamics. Tanya Peevey (presenter) said markets with tight RPS goals are especially vulnerable to price spikes, as the reduced supply of new wind and solar projects forces buyers to pay more for available energy.
4. REC Markets: Scarcity Drives Prices Higher
Capacity market prices have responded unevenly to H.R. 1’s changes. In MISO North/Central, capacity prices are projected to rise by 20% due to less storage and renewable build-out. In contrast, MISO South is projected to see prices drop by 15% as new storage and gas replace solar. ISO New England is projected to increase by 10%, while NYISO is projected to decrease by 10% as higher energy revenue reduce the “missing money” for gas units. PJM faces minimal change, with demand continuing to rise and high bidders setting prices regardless of scenario.
These shifts mean investors and operators must reassess risk and opportunity in each region. As Wendy Wen highlighted, “The winners and losers will be determined by local market dynamics and the ability to adapt quickly to these new realities.”
5. Environmental Impact: Emissions Rise, Net-zero Delayed
The resurgence of coal and gas generation results in higher emissions and delays the transition to net-zero. By 2035, the H.R. 1 scenario results in an additional 866 trillion BTUs of gas and 786 trillion BTUs of coal consumption compared to the baseline. This increase in fossil fuel use translates to 51 MMst CO₂ from gas and 81 MMst CO₂ from coal above baseline levels. Katherine Nelson said H.R. 1 extends the operating life of fossil fuels and locks in higher emissions well into the 2030s, making it more difficult for the US power sector to meet its clean energy targets and net-zero commitments.
Conclusion
The Budget Reconciliation Package fundamentally alters the US power sector’s outlook. With tax credit deadlines approaching, fossil fuel resurgence, price volatility, and rising emissions, the risks and opportunities are significant. The S&P Global Market Indicative Power Forecast solution on S&P Capital IQ Pro platform provides hourly power price forecasting, scenario modelling, and financial analytics to support confident decision-making for developers, investors, and utilities.
Explore the S&P Capital IQ Pro platform and watch the full webinar replay to see how we can support your decision-making during this period of change.
Disclaimer: This content may be created with the assistance of an artificial intelligence (AI) tool. While the AI tool may provide suggestions and insights, the final content was composed, reviewed, edited, and approved by a human at S&P Global. As such, S&P Global claims full copyright ownership of this AI-assisted content, in accordance with applicable laws and regulations.
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