Strong power demand supports investment in US renewables

“Government does not solve problems; it subsidises them.” That line from President Ronald Reagan, delivered when he was governor of California in the 1970s, has been circulating again recently, applied to the removal of tax credits for low-carbon energy in the US budget legislation passed in July.

Reagan’s point was that subsidies intended to solve a problem would actually end up perpetuating it. Applied to energy, the argument is that tax credits designed to accelerate the deployment of renewables would merely make the industry reliant on the incentives to sustain activity. Without the credits, the US renewables industry would be on a more sustainable long-term footing.

The end of many US tax credits for low-carbon energy is now putting that theory to the test.

The legislation informally known as the “one big beautiful bill” restricted or abolished tax credits for low-carbon energy worth about US$500 billion over the next ten years.

Wind and solar power were hit particularly hard by the changes. The technology-neutral tax credits available to wind and solar projects, known as 45Y and 48E, are disappearing with only a brief transition period.

Since 2019, wind and solar power have dominated investment in new electricity generation in the US. Last year, solar accounted for 67% of the addition to electricity supply capacity, with 9% for wind and 18% for energy storage.

The Trump administration aims to shift those proportions back towards dispatchable generation, particularly gas. Doug Burgum, the interior secretary, this week questioned the widely-used slogan that the US should have an “all of the above” approach to energy.

“’All of the above’ should have had a qualifier,” he said: it should not apply to wind and solar. Those were “the unreliable and the expensive sources” for electricity, he added.

That view has been reflected not only in the end of the tax credits, but also a more obstructive position on regulatory approvals for wind and solar. The interior department in July announced a series of initiatives that could add additional costs and delays to projects in solar and wind both onshore and offshore.

US power demand is rising, driven in part by investment in new data centres, and the electricity industry is under pressure to add additional supply as rapidly as possible. The policy changes from both Congress and the administration will curb the contribution from new wind and solar generation to meeting that demand.

The Wood Mackenzie view

Wood Mackenzie analysts have this week been at the RE+ conference in Las Vegas giving their views on the outlook for renewables. One of their key messages has been that although the end of the tax credits is clearly a setback for renewables in the US, we can still expect significant sustained investment in wind, solar and storage.

“There will be a short-term increase in deployments as projects rush to construction to claim the tax credits,” says Michelle Davis, Wood Mackenzie’s head of global solar.

“And then longer-term, while our outlooks are certainly lower, they're not as low as you might think, because the demand drivers are just so strong.”

Even without the tax credits, solar power remains highly competitive in many parts of the US. The latest levelised cost of energy numbers from Wood Mackenzie’s Lens Power platform show a range of US$30 to US$80 per megawatt hour (MWh) from fixed-mount solar, without tax credits, compared to US$61 to US$126 / MWh for new combined cycle gas turbine plants.

New solar generation capacity can also be added relatively quickly, compared to gas-fired plants. That advantage has been accentuated by tightness in the gas turbine supply chain as demand has surged.

As a result, Wood Mackenzie’s forecast for total solar capacity installed in the US over 2025-30 is still about 246 gigawatts. That is about 35% lower than our projection from a year ago, before the election, but still represents a robust level of activity. It is only 4% below our most recent forecast, from earlier this year.

For wind power, the impact is somewhat greater, in part because the new challenges from the administration are more extensive. The Department of Commerce last month launched an inquiry into the national security effects of imports of wind turbines and components, which could lead to further disruption for the industry’s supply chain.

We have cut our forecast for wind capacity added in the US over the next ten years by 23%, or about 22 GW. But that still leaves the US expected to add 72 GW of wind capacity over 2025-34.

There are potential downside risks to those projections. One is the impact of the Treasury’s latest guidance on implementing the transition period to the end of the credits. The law specifies that projects will be eligible if they start construction before 5 July 2026 and enter service by the end of 2030. The Treasury specified last month that the test for starting construction would be based on physical work that has been done.

A previous provision allowed a project to be deemed to have started construction if at least 5% of its cost had been spent. That safe harbor provision is no longer available.

We have yet to see how that new guidance will be applied in practice. The physical work test can be less clear than the 5% of spending rule, which was relatively straightforward to assess. There is likely to be more uncertainty for developers under the new guidance.

Separately, the Treasury is also working on the implementation of the new legislation’s rules on Foreign Entities of Concern. These rules, intended to stop the benefits of the tax credits going to organisations and individuals linked to China, Russia, Iran and North Korea, start to take effect for wind and solar projects next year.

Lawyers have warned that the rules are likely to lead to significant additional complexity for the renewables industry. The precise impact remains highly uncertain because the Treasury has not yet said how it plans to implement the law.

Another source of uncertainty is all the regulatory interventions coming from Interior and other government departments. We have yet to see how aggressively the administration will pursue its policies to restrict deployment of wind and solar.

Wood Mackenzie’s low case outlook for solar reflects a scenario where all those uncertainties materialise to the downside. In that scenario, we are projecting solar installations over 2025-30 to be about 18% lower than in our base case, but still with about 200 GW installed over the six years.

It is early days still, but right now it looks as though the US renewables industry can have a solid future, even without the support system provided by tax credits.

In brief

A government immigration raid on a South Korean-backed battery plant in Georgia has sent shockwaves through foreign investors in the US. The Ellabell battery plant, a joint venture between Hyundai and LG Energy, was raided by US Department of Homeland Security agents last week. About 475 workers were taken into custody on suspicion of working without the correct visas. Hyundai’s chief executive José Muñoz said the opening of the new Ellabell plant would be delayed by at least two to three months.

President Lee Jae Myung of South Korea described the situation as “extremely bewildering”. He added that if Korean companies were not allowed to send workers to the US to set up new factories, “establishing manufacturing facilities in the US will only become more difficult... making companies question whether it's worth doing at all.”

Other views

Will Chinese BEVs be a gamechanger in Europe and the US? – Simon Flowers and Prateek Biswas

The methane myth: Why US LNG still beats coal in the emissions race – Fraser Carson

Global wind market set for historic growth despite current headwinds

Summer 2025 wrap-up: gas generation falls despite higher power loads – Eugene Kim and Daniel Myers

Japan sweeps the dust from its energy strategy – Jim Mitchell

Anglo American and Teck announce zero-premium merger to create copper-focused major

What is Vladimir Putin’s game plan against NATO’s eastern flank? – Henry Foy, Courtney Weaver and Charles Clover

Trump's energy price promise is coming due. He has the power to solve the crisis – Neil Chatterjee

Quote of the week

"We need additional pressure on Putin. We need pressure from the United States. And I said that I think that President Trump is right about the Europeans. I am very thankful to all the partners. But some of them, I mean, they continue to buy oil and Russian gas. And this is not fair…So we have to stop buying any kind of energy from Russia." 

President Volodymyr Zelensky of Ukraine backed the Trump administration’s pressure on European countries to end their imports of oil and gas from Russia.

He also praised President Trump’s move to impose increased sanctions on US imports from India, saying it was the “right idea” to put up trade barriers for countries that continue to do trade deals with Russia.

Separately, Vice-President JD Vance used an interview with One America News Network to hold out the prospect of increased Russian oil and gas exports as a key benefit from agreeing a peace deal with Ukraine. The vice-president said stronger trade links could bring economic benefits to the US, and “might actually be the best guarantee of a long-term peace”.

Chart of the week

This comes from a new piece by Ben Hertz-Shargel, Wood Mackenzie’s global head of Grid Edge. It shows US utilities’ pipelines of new large loads such as data centres. The numbers are eye-opening. Utilities have over 17 GW of new large loads under construction, and have committed to another 99 GW. Altogether, that additional load is equal to more than 15% of current US peak demand. Check out the full report, and Ben’s other work on data centres and large loads, for more details.

Get The Inside Track 

Ed Crooks’ Energy Pulse is featured in our weekly newsletter, alongside more news and views from our global energy and natural resources experts. Sign up today via the form at the top of the page to ensure you don’t miss a thing.