President Trump’s declaration of a national energy emergency on day one of his second presidency has made it clear that meeting increasing energy demands is a critical priority of this administration. However, the issuance of the Unleashing American Energy executive order and the withdrawal of the United States from global climate agreements are strong indicators of the direction the new administration plans to take: reducing obstacles to fossil-based energy sources and no longer prioritising renewables.
Despite the administration’s indication of an “all of the above approach” to increasing energy production in the United States, momentum is clearly in favour of boosting fossil fuel production.
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The early executive orders have the most detrimental impact on programmes that fall under the previous administration’s renewable energy programmes captured in the bi-partisan Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA). The greatest immediate impact is being felt in the wind industry through the numerous permitting, easement and approval obstacles in the path of wind projects, particularly offshore wind development where leases have been halted.
Renewable energy, particularly solar capacity, has driven the growth of US power generation in recent years and is expected to continue to do so, according to the U.S. Energy Information Administration (EIA). Although solar does not appear to be in the direct crosshairs of the new administration’s shifting energy policy, solar project owners, manufacturers and investors should be aware of the potential impacts, particularly those related to IRA clean energy funding and tax credits.
There remains significant uncertainty with the new administration’s shifting policies and potential actions. However, based on early activity, here are the main considerations for solar stakeholders to keep in mind.
An immediate halt to loans and grants under the IRA will slow industry growth
In anticipation of a pause in IRA funding, the Biden administration allocated tens of billions in grants and loans in the last couple of months, with experts noting that these funds are legally obligated and difficult to claw back.
Historically, incoming administrations have honoured government contracts related to grants and loans from previous administrations. The pause might be an attempt to review any commitments made hastily for projects that are still in their early stages.
The exact impact on energy and decarbonisation projects already underway remains to be seen. The Trump administration’s funding freeze was rescinded just before it was to take affect amid confusion and worries over the toll it would take on non-profits and state and local agencies that rely on the funding. Despite this, the Executive Order remains in place mandating a 90-day review of all IIJA and IRA-related projects and maintaining the hold on all funding from these programmes pending further review.
The bottom line: energy projects relying on loans and grants for funding could be held up. However, the current administration could face legal challenges if contractually secured loans and grants for projects are not honoured.
IRA tax credits for clean energy projects should not be impacted
Early policy changes do not impact investment tax credits (ITCs) or production tax credits (PTCs) available to eligible clean energy manufacturers, providers, project owners or investors under the IRA. These credits are statutory and therefore unable to be revoked without a Congressional repeal of the law. Although uncertainty remains over what parts, if any, of the IRA will be repealed in the future, credits are still available for projects in the near term.
There is early consensus among industry analysts that a full repeal of the IRA is unlikely. However, some trims to the programme could be made as part of the administration’s budget reconciliation bill, which is expected to take place in late 2025.
In the meantime, clean energy projects that are eligible for the 30% tax credit and bonus adders for projects located in low income or energy communities – those impacted by the energy transition – as well as those projects using domestically made components should continue to move forward. Project owners should concentrate on meeting and substantiating “begun construction” deadlines to ensure eligibility for credits as allowed under the existing IRA law.
There is more uncertainty surrounding the impact on direct pay tax credits
Not-for-profit organisations that are relying on direct pay tax credits are most concerned about the impact of policy changes on their current and future projects. The direct pay provisions of the IRA were introduced as a means to expand access to the IRA’s energy credit regime by providing entities that generally do not have annual tax liabilities a mechanism for monetising them. As the law stands currently, direct pay credits are still considered tax credits under the IRA and therefore fall under tax law. A change in policy resulting from the Unleashing American Energy executive order will not impact this.
Uncertainty remains whether the pause in funding covers all prospective funding, such as direct pay provisions under the IRA, or if it applies solely to federally administered grants, loans and contracts. This is particularly applicable to energy projects undertaken by municipalities, tribal nations, educational institutions and other tax-exempt entities. However, at this time, projects that are currently in place should continue to move forward, focusing on meeting eligibility criteria and “begun construction” deadlines in the event of a repeal.
Transferability of tax credits is expected to remain in place
The transferability market of IRA tax credits plays an important role in ensuring that developers of both small- and large-scale solar projects have the necessary cash flow without the complexity of having to rely on other investors such as PE firms. The transferability of tax credits provision of the IRA is law, so unless the law is repealed by Congress and the President, the transferability market is expected to remain in place. There has been no indication that the transferability piece of the IRA is being targeted for repeal.
The potential for increased tariffs is both a risk and an opportunity
Although tariffs are nothing new for the solar industry, uncertainty remains over what goods in the solar PV supply chain will be subjected to new or increased tariffs by the new administration, and at what rate. Increased tariffs would likely cause the cost of materials and components to rise, creating another obstacle for the solar industry as it competes with other energy sources. The upside, however, would be a more equitable playing field for US manufacturers against low-cost international competitors.
Boiling it down: Clean energy growth will continue in the face of uncertainty
Uncertainty remains over the direction of the new administration and the long-term future of the IRA/IIJA clean energy provisions. This uncertainty could have an impact on short-term growth and investments in the clean energy industry. However, growth of renewable energy and storage capacity remains a critical means of meeting increasing energy demands, providing grid stability and adding jobs in many Congressional districts – all of which are priorities of the new administration – and the IRA and IIJA are important incentives to continue fuelling that growth.
By Bob Moczulewski, tax director, and Joel Laubenstein, principal, Baker Tilly.
