The United States’ draft budget reconciliation bill would deter the development of renewable energy projects, analysts have warned.
Energy analytics company Wood Mackenzie has warned that if the bill is passed, solar, wind and energy storage forecasts will be potentially downgraded, while 95% of announced green hydrogen projects will be put at risk.
The proposed legislation from the US House Ways and Means Committee would bring an end to renewable energy subsidies.
It would wind down tax credits for most renewable energy investment and production by 2031 and would also restrict the availability of tax credits to foreign organisations.
Wood Mackenzie’s principal analyst Sylvia Leyva Martinez said: “Many of the elements in the proposed House budget bill would deter the development of renewable projects in the US.
“While some technologies would be more affected than others, the early phase-out 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 US.”
The bill proposes a phased reduction of the investment tax credit (ITC) and production tax credit (PTC) for solar, wind, and storage projects.
The credits would remain at full value for projects in service by 2028, then decrease to 80% in 2029, 60% in 2030, 40% in 2031 and 0% in 2032.
“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.”
According to Wood Mackenzie, utility-scale solar growth may be hindered by the provisions in the proposed bill.
FEOC provisions could effectively close the US market to Chinese companies, and the end of tax credit transfers would “dramatically hinder” US manufacturers that rely heavily on this mechanism for financing.
Wood Mackenzie said the tax credit phase-out would heavily impact the wind supply chain and project pipeline.
Senior research analyst Diego Espinosa said: “We project a slight increase in wind installations, driven by the rush to qualify for the PTC, similar to the trend observed from 2020 to 2022, where installations averaged 14GW annually.
“However, the shift in terminology from ‘start of construction’ to ‘placed in service’ is expected to tighten project pipelines, thereby increasing financial risk and uncertainty.”
The current onshore wind project pipeline, expected to come online between 2025 and 2027, totals nearly 11GW.
These projects are likely to face challenges in meeting the eligibility criteria for the ITC and PTC.
“The proposed bill introduces additional stress to our wind outlook,” said Espinosa. “While it encourages a focus on operational readiness and project completion, it also poses challenges for investments and complicates financing.”
Meanwhile the combination of IRA tax credit restrictions and China tariff uncertainty creates significant headwinds for the energy storage sector.
FEOC restrictions could effectively end the ITC for most storage projects starting construction after 2026, Wood Mackenzie warned.
A proposed amendment to terminate the clean hydrogen production tax credit also threatens to derail US clean hydrogen ambitions, putting almost all announced green hydrogen capacity at risk.
Principal analyst Hector Areola said: “Developers face a critical decision: either accelerate their projects to meet the new deadline or risk losing the tax credit entirely.
“The ongoing regulatory uncertainty threatens to stagnate the low-carbon hydrogen industry in the US and could potentially alter the landscape for clean hydrogen globally.”