Renewables in the US face a future without tax credits

Elon Musk and President Donald Trump, close allies during last year’s election campaign and in the first few months of the new administration, have fallen out.

Musk has been repeatedly critical of the version of the tax and spending legislation, supported by the president, that was passed by the US House of Representatives last month. “Call your Senator, Call your Congressman, Bankrupting America is NOT ok! KILL the BILL,” Musk posted last Wednesday.

President Trump, in reply, said he was “very disappointed” with that position, and suggested Musk had come out against the bill only after he had learned that the administration was removing regulations that support electric vehicles.

Musk’s answer was: “Whatever. Keep the EV/solar incentive cuts in the bill, even though no oil & gas subsidies are touched (very unfair!!), but ditch the MOUNTAIN of DISGUSTING PORK in the bill.”

The clash between the two former allies underlines the difficulties facing the low-carbon energy sectors in negotiations over the bill. The version that was passed in the House accelerates the elimination of the production and investment tax credits (PTC and ITC) for low-carbon energy that were extended and expanded in the 2022 Inflation Reduction Act (IRA).

Those credits have played a key role in the growth of wind, solar and battery storage investment in the US over the past three years. Ending them would have a significant impact.

Speaking at the ACORE Finance Forum in New York, Sandhya Ganapathy, CEO of EDP Renewables North America, said that if the measures in the House bill survived into the final legislation, it would be “catastrophic” for the industry.

The proposed legislation, known as the “One Big Beautiful Bill Act”, is now in the Senate, where substantial changes are possible. That is the good news for low-carbon energy sectors. The bad news for those sectors is that much of the pressure to change the bill is coming from senators who agree with Elon Musk that the legislation should do more to reduce the budget deficit, by cutting government spending and tax credits.

Senators will be weighing up calls to save energy tax credits against demands to cut the budget deficit and defend other priorities including Medicaid, the government healthcare programme for people on lower incomes.

The non-partisan Congressional Budget Office has estimated that the version of the budget legislation that passed in the House would add US$2.4 trillion to total US budget deficits over the 10 years from 2025 to 2034.

Several Republican politicians have said they will not accept a bill that delivers such a large increase in the national debt. Ron Johnson, a Republican senator from Wisconsin, told CNBC: “This is grotesque, what we’re doing… I can’t accept the scenario, I can’t accept it, so I won’t vote for it, unless we are serious about fixing it.”

President Trump has indicated that he wants a bill on his desk to be signed by 4 July, which means Congress would need to move fast. Even if that deadline is missed, there is an expectation in Washington that representatives and senators will want to have a bill passed before their summer recess. That starts in late July for the House and early August for the Senate.

Making significant changes to such a long and complex bill in such a short time will not be easy. The House version is 1,116 pages long.

Low-carbon energy advocates have not given up hope of making the final bill significantly better for the sector. Thom Tillis, a Republican senator from North Carolina who supports renewables, said that every energy tax credit “is going to have some sort of an extension” compared to the timetable for phase-out set in the House version of the bill.

However, the political environment is volatile, further inflamed by the war of words between Musk and President Trump. The comforting story told by many in the renewables industry was that the investment supported by the tax credits in the IRA would build a significant constituency of Republicans in Congress prepared to defend the policy.

That hope has now been exposed as wishful thinking. When the crunch came, several House Republicans who are public supporters of low-carbon energy still voted for the bill, because other priorities were more important to them. That same dynamic could play out in the Senate.

For the renewables industry, the worst-case scenario – a final bill passing into law that is very close to the version agreed by the House – is a very real possibility.

The Wood Mackenzie view

Last year, Wood Mackenzie analysts put together a “severe downside scenario” examining the potential implications of a Trump presidency and Republican-controlled Congress for US investment in wind, solar and storage.

Having updated our modelling for the potential impact of just this sort of legislation, our new downside case looks very similar to those projections from nine months ago.

The bill delivers a quadruple blow to the PTC and ITC, as set up under the IRA. They are not available after the end of 2028. They are not available for any project that has not started construction within 60 days of the bill passing. They will not be transferable beyond two years from the bill’s passing. And they face strict eligibility rules around relationships with Foreign Entities of Concern (FEOCs): organisations linked to China, Russia, Iran, and North Korea.

Industry insiders say this last point could make it practically impossible for most projects to qualify for the credits, because they will find it very hard to remove all Chinese content from their supply chains.

The combined impact of those changes, along with increased tariffs on equipment and continuing challenges with permitting and grid interconnection, would be to slam the brakes on investment in renewables and storage in the US.

New research, to be published soon by Wood Mackenzie analysts, will give a detailed breakdown of the expected impacts across utility-scale and distributed solar, onshore and offshore wind, and utility-scale and distributed storage.

The effects would not be uniform across those market segments, because of variations in the detailed changes to the tax credits, and in the underlying health of the sectors. Wind, both offshore and onshore, and distributed solar and storage are among the sectors we would expect to be hardest hit, as measured by the downward revisions to our projections for future installations.

Less severely affected, by our reckoning, will be utility-scale solar. “The development pipeline for utility-scale solar is about 173 gigawatts, and about 66% of that is being developed by players with a successful track record,” says Sylvia Leyva Martinez, Wood Mackenzie’s Principal Analyst for North America utility-scale solar.

“These players have strong balance sheets and relationships with financiers and offtakers. They are well-positioned to secure start-of-construction requirements or renegotiate contracts if needed.​”

But even for that more resilient utility-scale solar sector, we would still expect an 11% reduction in capacity installed in the US from 2025 to 2029, relative to our base case.

The bottom line is that ending the PTC and ITC on the timetable envisaged by the House would lead to a sharp drop in investment in low-carbon energy. Look out for the full report for Wood Mackenzie clients, coming soon, for further details.

OPEC+ countries keep up pace of production increases

The eight members of the OPEC+ group of countries that have made voluntary production cuts agreed to raise their total output by 411,000 barrels per day in July, as they continue to unwind those cuts.

That will make it the third month in succession that the eight countries, including Saudi Arabia and Russia, have agreed on an increase of that size. The actual amount of additional oil coming on to the market will be affected by compensation plans to offset past overproduction.

The eight countries agreed last December to begin reversing the 2.2 million b/d voluntary production cut that took effect in the first quarter of 2024. Their initial plan was to step up production in monthly increments of 137,000 b/d, but the increases since May have been running at a pace three times that.

Ann-Louise Hittle, Wood Mackenzie’s head of Macro Oils, said that if that faster rate of easing production restraint continued, the 2.2 million b/d production cut could be entirely reversed by October of this year. She added: “In this case, the supply and demand balance shows a significant oversupply starting in Q4 2025.”

The continuation of the production increases had been expected by the markets, and oil prices showed little reaction to the news, focusing more on the escalation in the Russia-Ukraine conflict. Brent crude was trading at about US$67 a barrel on Friday.

In brief

While Congress has been debating cuts in support for low-carbon energy through the tax system, the US Department of Energy has been scaling back funding for emissions-reducing technologies using government spending. The department terminated 24 awards made under the Biden administration to support projects for carbon capture, utilisation and storage (CCUS) and other emissions-reducing technologies.

The 24 awards cancelled have a total value of more than US$3.7 billion. Nearly 70% were signed between election day last November and President Trump’s inauguration on 20 January 2025. Chris Wright, the energy secretary, said the Trump administration was working to ensure that US government spending would “strengthen our national security, bolster affordable, reliable energy sources and advance projects that generate the highest possible return on investment”.

EOG Resources has announced its first acquisition for almost a decade, agreeing to pay US$5.6 billion for private Utica pure-play operator Encino Acquisition Partners. The deal, which will be financed with US$3.5 billion of debt and US$2.1 billion of cash, marks EOG’s first major corporate acquisition since it bought Yates Petroleum in the Delaware basin for US$2.5 billion back in 2016.

Wood Mackenzie’s Lydia Walker and Robert Clarke said Encino's rich gas acreage in the heart of the Utica play might have been the primary attraction for EOG. The deal reorients the company’s portfolio, establishing the Utica as another core asset for EOG alongside its holdings in the Delaware Basin, and ahead of its position in the Eagle Ford. It also provides product optionality, with dry gas and rich gas as well as oil. The Utica position is expected to be an increasingly important segment of EOG’s portfolio, providing growth as the company’s assets in the Eagle Ford mature.

Constellation Energy has agreed a 20-year power purchase agreement (PPA) with Meta for the output of its Clinton Clean Energy Center, a nuclear power plant in Illinois. The deal is the latest example of a big tech company signing a deal with a nuclear generator to supply electricity for its data centres. The power from the Clinton plant, about 1.12 gigawatts, will support Meta’s operations in the region and help it make progress towards its clean energy goals.

The Clinton plant had been on course to shut down after its subsidy from Illinois’ zero emission credit (ZEC) programme expires in mid-2027. The agreement with Meta is expected to support relicensing and continued operation at the plant for another two decades after the ZEC subsidy ends.

Other views

US tariffs: unpredictability is the strategic planners’ nightmare – Simon Flowers, Gavin Thompson, Peter Martin and Ed Crooks

Large load tariffs: a looming challenge for utilities – Ben Hertz-Shargel

Tariffs to increase costs and slow down development for US power industry

Rock solid: geothermal’s upward trajectory – Annick Adjei, Zoé Sulmont and Kate Adie

Quote of the week

“When you look at the president’s executive order, twice the Alaska LNG project has been mentioned as a top priority of the United States of America… We’ve never had that before. President Trump highlighted it in his State of the Union, in his meetings with the Korean president, with the Japanese prime minister. So a lot of tailwinds there, exciting times. We’re not there yet, but it’s exciting.”

Senator Dan Sullivan of Alaska, speaking at a meeting with senior Trump administration officials, spoke positively about the prospects for the proposed Alaska LNG project.

The ambitious plan to export gas from the North Slope has been a long time in gestation. The first plans to build a gas pipeline across Alaska were drawn up in the 1970s. Senator Sullivan said many Alaskans would “roll their eyes” when the project was mentioned. But he argued that thanks to the support of the new administration, Alaska LNG was now making “really historic progress”.

Chart of the week

This comes from: Geothermal: the next North American goldrush? by Annick Adjei, Wood Mackenzie’s Senior Research Analyst for Subsurface (New Energies). The chart explains the note’s title: last year saw a surge of interest in next-generation geothermal in the US and Canada. Of the 15 new next-generation geothermal projects announced in 2024 around the world, eight were in North America.

Although the US is already the world’s largest geothermal power producer, its 4 gigawatts of installed capacity leave a vast resource still untapped. Adjei notes that the next-gen geothermal market is dominated by US and Canadian companies, including Fervo and Eavor.

Download the slide deck from her recent presentation for more details.

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