Proposed budget could deter development of renewable energy projects in the U.S., cause a downturn in domestic manufacturing, says a Wood Mackenzie analyst.
The U.S. House of Representatives’ Budget Committee approved the Ways and Means Committee’s proposed budget reconciliation bill that sunsets the 48E Investment Tax Credit and the 45Y Production Tax Credit for clean energy projects several years ahead of schedule, phasing to 80% of the full value in 2029, 60% in 2030, 40% in 2031, and 0% in 2032.
(Read House proposes early phase-out of IRA clean energy tax credits)
Many industry watchers find the proposed bill at odds with the progress made in clean energy advancement, along with increased jobs and onshoring of the clean energy manufacturing supply chain.
Sylvia Leyva Martinez, principal analyst for Wood Mackenzie, believes the budget will “deter the development of renewable projects in the U.S.” She emphasized the two major challenges are the timeline for placing projects in service and the “foreign entities of concern” restrictions.
“While some technologies would be more affected than others, the early phaseout of tax credits, the removal of transferability, the requirement for projects to be placed in service to obtain the tax credits and the more stringent provisions on ‘foreign entities of concern’ (FEOC) affect the vast majority of clean energy projects in the U.S.,” Leyva Martinez said.
The proposed budget includes an early phase-out of the 48E Investment Tax Credit and the 45Y Production Tax Credit beginning in 2029. Any projects “not placed in service” by December 31, 2028 will qualify for lower credit amounts.
“The proposed changes would have far-reaching implications across the clean energy sector,” said Leyva Martinez. “While the bill maintains some elements like domestic content and energy community adders, the overall outlook for the industry appears challenging.”
The Solar Energy Industries Association (SEIA) estimates that there are 167 GW of utility-scale solar currently operating in the U.S., with another 109 GW under construction or development. According to Wood Mackenzie, the provisions in the proposed bill may hinder this growth.
The residential solar segment added 4,742 MWdc in 2024, a 31% decline compared to 2023 and the lowest year of installed capacity since 2021, according to SEIA. The elimination of 25D after 2025 will create further challenges for this struggling sector, Wood Mackenzie said.
Manufacturing and jobs
Solar manufacturing has taken off since passage of the Inflation Reduction Act (IRA) in 2022. SEIA estimates that announced investments in the U.S. since passage of the IRA now total $38.3 billion. Of these announcements, $7.9 billion are operational, $15.8 billion are under active construction, and another $14.6 billion manufacturing investments are under development.
Job creation has also been strong since passage of the IRA, with these investments expected to create over 49,250 manufacturing jobs, according to SEIA, which expects that by 2033, the U.S. solar manufacturing workforce could grow to 100,000 workers.
Wood Mackenzie sees the extension of 45X through 2031 is positive for manufacturers; however, “the end of tax credit transfers would dramatically hinder U.S. manufacturers that rely heavily on this mechanism for financing.”
While the implications of the rules are unclear on how FEOC organizations are defined and treated for the purposes of awarding federal tax incentives, Wood Mac sees the FEOC provisions as potentially closing the U.S. market to Chinese companies,
(Read Proposed rules changes for foreign entities of concern could alter solar supply chains)
“On balance, the proposed bill presents more downside risks to our forecast and may lead to a downward revision of our Q1 2025 Base case,” said Leyva Martinez. “However, the full implications for installations and industry stakeholders’ responses are yet to be determined.”
The proposed bill next moves through House Rules and onto the House floor.
