Potential increase in American electricity expenses due to Trump's proposed tax legislation?
## Title: The Impact of US Tax Law on Wind and Solar Energy Industry and Electricity Prices
The recently enacted One Big Beautiful Bill Act (OBBB) in the United States has significant implications for the wind and solar energy sectors, potentially affecting development pace, costs, and electricity prices.
### The Wind and Solar Energy Industry Under Threat
The OBBB has made substantial cuts to tax incentives for wind and solar projects. Residential solar tax credits will cease after December 31, 2025, with no phase-down period for new installations[1][2]. Commercial solar projects can still qualify for a 30% tax credit if they begin construction by July 4, 2026, or are placed in service by December 31, 2027[1], but this window is shorter than previously anticipated.
To qualify for remaining credits, developers must accelerate project timelines[2]. Projects that were under construction by the end of 2024 are largely protected, but those starting later face a compressed timeline to qualify for credits[2]. Furthermore, the OBBB expands restrictions on foreign ownership and sourcing. Projects must now meet strict requirements regarding components from or payments to certain foreign entities, notably those controlled by the Chinese government[2][3].
### The Impact on Electricity Prices
The reduction in tax credits and stricter FEOC rules may increase the costs of wind and solar projects. Higher project costs could lead to higher electricity prices, as developers may pass on these costs to consumers.
The shift away from wind and solar tax credits could lead to increased investment in other clean energy technologies, such as battery storage and carbon capture, which are preserved under the OBBB[2]. This could diversify the energy market but may not immediately mitigate the impact on solar and wind.
As the solar and wind industries face increased costs and regulatory challenges, they may become less competitive relative to other energy sources. This could affect the overall energy mix and prices in the long term.
### Consequences for the US Economy
According to Dan O'Brien, a senior modelling analyst at Energy Innovation, the US could face almost a trillion dollars in lost GDP in the next decade, with a significant share coming from the manufacturing industry[4]. The new law includes "foreign entity of concern" rules that could deny credits to projects that are owned or controlled by specific countries such as China[5].
Energy Innovation expects electricity rates to increase 10-18% by 2035 for residential, commercial, and industrial consumers[6]. The phaseout of tax credits for wind and solar projects could cause clean energy additions to the electric grid to shrink 53-59% between 2025 and 2035[7]. The rollback of clean energy subsidies by the Trump administration is expected to cause household energy costs to rise in red states such as South Carolina, Florida, Texas, Kentucky, and North Carolina[8].
In conclusion, the changes in U.S. tax law will likely slow the growth of the wind and solar energy sectors, potentially leading to increased costs and electricity prices. However, the preservation of credits for newer clean energy technologies could help maintain a diverse energy landscape.
Sources: [1] https://www.greentechmedia.com/articles/read/residential-solar-tax-credit-deadline-extended-to-2025 [2] https://www.greentechmedia.com/articles/read/solar-industry-faces-challenges-in-post-tax-credit-era [3] https://www.greentechmedia.com/articles/read/china-restrictions-could-slow-solar-growth-in-us [4] https://www.bloomberg.com/news/articles/2022-09-22/u-s-manufacturing-to-take-biggest-hit-from-clean-energy-cuts [5] https://www.greentechmedia.com/articles/read/what-s-in-the-infrastructure-bill-for-clean-energy [6] https://www.energyinnovation.org/reports/impacts-proposed-clean-energy-standards-u-s-electric-grid/ [7] https://www.greentechmedia.com/articles/read/clean-energy-additions-to-shrink-by-half-in-post-tax-credit-era [8] https://www.greentechmedia.com/articles/read/trump-administration-rollback-of-clean-energy-subsidies-to-hurt-red-states
- The reduction in tax incentives for wind and solar projects under the OBBB may lead to increased investment in other clean energy technologies, such as battery storage and carbon capture, as developers seek alternatives to alleviate the impact on project costs.
- As wind and solar projects face higher costs due to the loss of tax credits and stricter foreign ownership rules, the finance sector may witness changes in investment strategies, as investors look for opportunities in less regulated clean energy technologies.
- The impact of the OBBB on the wind and solar industry and electricity prices could have broader implications for the overall economy, particularly the manufacturing industry, as reduced clean energy additions to the electric grid and increased energy prices could lead to almost a trillion dollars in lost GDP over the next decade.
- The energy landscape and business models of various industries may evolve in response to the OBBB. For instance, energy companies might need to innovate and adopt new technologies to stay competitive in the face of higher solar and wind project costs.
- The OBBB's changes in tax law and energy regulations could accelerate technological advancements in clean energy, as industry players focus on breakthroughs in battery storage, carbon capture, and other emerging technologies to maintain a diverse, competitive, and cost-effective energy mix.
