By Mark Jaffe, EUCI energy writer
The repeal of renewable energy tax credits, part of the proposed Republican budget bill, would lead to a 15% decline in wind, solar, and battery storage capacity by 2035 and an increase in wholesale and retail electricity prices, according to an S&P Global forecast.
“As renewable generators lose the ability to use these credits as negative bids, we may see increased costs for consumers,” S&P Global said.
The bill cutting taxes and spending, which has already passed the House of Representatives, would phase out the Production Tax Credit (PTC) and Investment Tax Credit (ITC), which have been instrumental in renewable project financing.
“The ‘One Big Beautiful Bill Act’, if approved by the Senate, will result in substantial negative changes to clean energy tax credits,” credit analyst Morningstar said in a commentary.
“U.S. energy production and grid reliability are likely to be affected, potentially resulting in increased costs and market uncertainty,” Morningstar said.
The PTC created a 2.75-cent credit for every kilowatt-hour generated by a renewable energy project over 20 years, and the ITC enabled a developer to take credit for 30% of the cost of a project. The credits could be deducted from operators or sold to raise funds.
“The removal of the PTC for wind and solar will result in higher wholesale energy prices,” S&P Global said. “This significant reduction could have lasting implications for our clean energy goals.”
One of the challenges of wind and solar is a mismatch between generation and demand, which sometime requires renewable generation to be taken offline – known as curtailment.
The loss of the credits will limit new, lower-cost renewable projects coming online and reduce curtailment for existing wind and solar. “The higher energy prices result in high revenues for generators offset by the loss of PTC revenues,” S&P Global said.
In the PJM Interconnection, the country’s largest grid covering mid-Atlantic and Midwestern states, an S&P Global analysis found that removing the tax credits diminished future revenues.
Wind and solar projects in the PJM have been able to achieve full equity returns by 2035, but “without tax credits, these projects can no longer generate sufficient revenue for equity payments,” S&P Global said.
Another impact of the tax credit cuts will be a bigger role for fossil fuel generation. S&P Global projects natural gas-fired generation capacity will grow 5% and its share of generation by 16%.
Coal capacity will continue to decline, but its share of generation will increase, resulting in higher capacity for efficient generators.
As a result of the bigger role for fossil fuels, there will only be an 11% reduction in greenhouse gas emission from 2022 levels by 2035, instead the 75% target that was part of the Biden administration’s Inflation Reduction Act.
“The bill will also have a material impact on the overall growth of U.S. energy production and grid reliability, potentially resulting in increased energy costs and market uncertainty, which may slow energy project development,” Morningstar said.
In 2024, the credit analyst said the electric power sector added 37 gigawatts (GW) of solar power capacity and 7 GW of wind capacity and just 1 GW of natural gas-fired capacity, while 3 GW of coal capacity was retired.
“Prior to the start of Trump’s current administration, it seemed clean energy tax credits were safe from changes given their broad support, the need for additional energy supply, and the positive impact the credits created for Republican-led districts, such as job creation and economic growth,” Morningstar said
However, it is unlikely, even with revisions in the Senate, the tax incentives will remain in their current form. “The bill will result in substantial negative changes to clean energy tax credits, such as an earlier-than-expected phase-out,” Morningstar said.
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