U.S. Senate's Draft Budget Bill Phases Out Clean Energy Tax Credits

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Researched by Industrial Info Resources (Sugar Land, Texas)--Earlier this week, the U.S. Senate released it proposals in regard to the future of tax credits for wind and solar energy in the upcoming U.S. budget bill. While the draft legislation is not as severe as what the House had proposed, the Senate has still opted to phase out wind and solar tax credits by 2028. Reactions have been mixed.

The House's version of the tax bill, passed in May, would gut the wind and solar tax credits almost immediately, requiring that to obtain the credits, construction of projects had to begin within 60 days of the bill's passage. The Senate's bill calls for a longer-term phase-out of the credits, proposing reducing the incentive to 60% of their value in 2026 and eliminating them entirely by 2028. Current legislation calls for the tax credits to begin phasing out in 2033. The current Investment Tax Credit stands at 30% for wind and solar projects that begin construction through 2032, with solar decreasing to 26% in 2033 and 22% in 2034 and wind power charted for a similar course. The Production Tax Credit for wind provides a credit of up 2.75 cents per kilowatt-hour generated and is good for 10 years after the equipment is placed in service.

The Senate's bill also is more supportive of hydropower, which received no incentives in the House Bill. The Senate's bill extends the credit for hydropower, nuclear and geothermal energy, which are favored under the current administration, to 2036. However, the Senate's tax credit does not extend to the upgrade of existing hydropower facilities, only to the establishment of new ones. The majority of the U.S. hydropower projects tracked by Industrial Info in the U.S. are for upgrades and life-extensions to existing facilities.

Reaction from the renewable energy sector primarily has been negative regarding the Senate's proposals. ABC News reported Jackie Wong, senior vice president for climate and energy at the Natural Resources Defense Council: "This is a 20-pound sledgehammer swung at clean energy. It would mean higher energy prices, lost manufacturing jobs, shuttered factories and a worsening climate crisis."

"Despite modest improvements on several provisions, this legislation does not go far enough to remove the threat to one of the greatest economic success stories in American history," Abigail Ross Hopper, president of the Solar Energy Industries Association, said in a statement.

One industry group managed to put a positive spin on the Senate's proposed legislation, when compared to that passed by the House. Pat Vincent-Collawn, interim chief executive officer of the Edison Electric Institute, which represents investor-owned electric companies, said, "These modifications are a step in the right direction," noting the "more reasonable timelines for phasing out energy tax credits."

Energy company RWE AG (Essen, Germany), which claims to be the third-largest renewable energy company in the U.S., on the day after the Senate's proposals were released from committee, issued a press release headlining the company's "support of U.S. energy dominance" through 3.9 gigawatts of onshore wind, solar and battery energy storage construction across 11 U.S. states. "RWE's construction projects created more than 5,000 jobs in 2024 alone," the release says. "As a result of predominantly sourcing equipment in the U.S., and working with leading domestic manufacturers, offtakers and contractors, the projects provide local jobs, economic growth and help to enhance domestic energy generation in the U.S."

Other groups have highlighted the economic impact of the tax credit cuts. A report from Atlas Public Policy cited in more than one recent media release notes that 62,700 jobs are associated with operational facilities that qualify for the tax credit and that 77% of all investments in the upstream and downstream clean energy sector was in Republican House Congressional districts.

Like the House bill, the Senate bill also eliminates consumer credits for the installation of rooftop panels and other energy-related home improvements for consumers. While the Senate's energy-facing proposals have been announced, they may ultimately change before the legislative body passes its final version of the bill, which then must be approved by the House.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).