If the Republican-controlled Senate doesn’t drastically roll back the “one big beautiful bill’s” cuts to the Inflation Reduction Act’s climate spending tax credits, the Biden-era clean energy party could be over.
The IRA credits created a clean energy boom in the United States, partly by allowing the credits to be transferable—small clean energy projects could sell tax credits to a giant corporation with a higher tax burden, or a clean energy developer could pass the tax credit off to a corporation that invested a small percentage in the project.
“The tax credits previously were one component that were used in doing that valuation calculation or the return on investment calculation to have it make sense,” Maura Hodge, US sustainability leader at KPMG, told CFO Brew.
Altus Power, a commercial solar power developer, partners with companies like banks or other institutions to place and operate solar panels on corporate buildings, hospitals, and schools. According to the company’s CFO, Dustin Weber, the tax credit allowed them to keep the overall cost of the projects down and grow the business much faster by attracting corporate partners.
“Their primary economic motivation is to get the investment tax credit to offset some of their tax liabilities,” Weber told CFO Brew.
But the budget bill the House passed on May 22 would eliminate this transferability in two years if the bill becomes law. And to claim clean energy subsidies, projects would have to start construction within two months of the bill passing and be operational by 2029.
According to Weber, those timelines are extremely restrictive, especially for clean energy projects that take many years to plan, construct, and deploy.
“It’s going to be very difficult for us to say, yes, let’s make these millions of dollars of investments, and then having to hope and pray that we get inside the 2028 cutoff,” he said.
What would make that construction even harder is the House’s ban on sourcing any of the materials for these projects from China, where most of the components for solar panels and wind turbines are made. And according to Weber, “nobody knows” how that rule will be tracked or enforced.
The bill also eliminates tax credits for residential upgrades, rooftop solar, energy-efficient homes, and electric vehicles. Opponents of the credits argue that as renewable energy prices—specifically solar and wind—have fallen to become mostly cheaper than traditional fossil fuels, these incentives are no longer necessary.
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“Even without certain credits today around solar, battery power, wind energy, it’s still cheaper to use and bring on net new projects to meet the energy and the power demands that we have now,” Hodge said.
But Weber noted that in the 25 states where Altus Power operates, about five have price parity between solar and fossil fuels: California, Hawaii, New York, Connecticut, and Massachusetts. These are places where power is expensive, but in the other states the company serves, the local power costs are lower, making credits necessary to level the playing field and keep its business competitive.
Some parts of the IRA’s clean energy initiatives were spared the axe. Nuclear facilities have until 2029 to start construction, and no timeline for operation. And the credit for carbon capture projects remains.
“I think one of the trends we anticipate is actually an increase in carbon sequestration as a way to help companies decarbonize,” Hodge said.
How are companies preparing?
Weber is holding out hope the Senate will make less drastic cuts to green energy subsidies than the House in its version of the bill.
Hodge advises companies to start looking for other viable sources of funding to replace the credits—things like local grants, subsidies, rebates, green bonds, sustainable bonds, and other forms of financing.
But she remains optimistic about clean energy demand.
“We’ve got all of these AI data centers coming online,” she said. “Our need for power continues to increase, so it’s got to come from somewhere, and even if it’s going to be more expensive to use solar, that’s what’s available.”
Weber is figuring out how to prove his company started construction within the timeframe necessary to claim the tax credit. Part of that will be taking inventory of equipment, but in reality the situation is too (what’s the word of the year?) uncertain to make any final decisions.
“The removal of the [investment tax credit] will mean lower growth for solar,” Weber said. “And that obviously has to translate into higher power prices for everybody.”