According to Wood Mackenzie, the draft budget reconciliation bill released by the US House Ways and Means Committee may hinder utility-scale solar’s growth in the US, apart from negatively impacting solar manufacturing in the country.
Principal Analyst for Wood Mackenzie, Sylvia Leyva Martinez, believes that the extension of 45X through 2031, as proposed, is a positive for manufacturers.
However, stringent provisions on ‘foreign entities of concern’ (FEOC) could ‘effectively close’ the US market to Chinese companies. Ending tax credit transfers could also severely impact US manufacturers that depend on this mechanism for financing.
Levya Martinez opines, “The proposed changes would have far-reaching implications across the clean energy sector. While the bill maintains some elements like domestic content and energy community adders, the overall outlook for the industry appears challenging.”
Wood Mackenzie’s concerns echo those of the industry associations that see the changes, if implemented, as disrupting the domestic industrial buildout plans (see US Legislation Proposes Earlier Phase Out Of Clean Energy Tax Credits).
The major impact will be felt by the wind energy sector, as the draft proposes early termination of wind component credits. Similarly, FEOC restrictions could ‘effectively end’ the Investment Tax Credit (ITC) for most storage projects starting construction after 2026.
“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.”
Online solar marketplace EnergySage believes the One, Big, Beautiful Bill would extend expiring Trump-era tax cuts at the expense of job-creating, cost-cutting energy credits, but not without expected resistance from key swing representatives in the Senate.
A major impact will be felt by the residential solar segment, where solar owners can currently claim 30% of installation costs as ITC on federal tax bills through 2032. Gradual phase-down is to start in 2033 and end by 2035. This ‘abrupt’ elimination would further disrupt the solar market, according to EnergySage.
Impact on other technologies
The draft legislation recommends termination of the clean hydrogen production tax credit (PTC), which puts almost all announced green hydrogen capacity at risk, points out the Wood Mackenzie team. Incentives for nuclear power would also go down, but federal support would drive deployments. While there is an accelerated phase-out of the investment tax credit (ITC) for geothermal in the proposal, CCUS (carbon capture, utilization and storage) is the ‘biggest winner’ in the proposed House bill, for which the 45Q tax credit remains largely unchanged, according to the Wood Mackenzie analysts.
