As the US clean-energy sector adjusts to a new political landscape, industry
stakeholders are understandably concerned about the future of the transformative
tax incentives established under the Inflation Reduction
Act
(IRA). While uncertainty exists, a careful analysis of tax-policy history,
political realities and energy demands suggests a more nuanced outlook than
headlines might indicate.
Existing projects have strong protections
For developers and investors with projects already underway before January 1,
2025, there's significant protection built into the structure of energy-tax
incentives. The Section 48 “renewable energy” credits are locked in by
"beginning of construction" dates, rather than completion dates; but the
Section
48E
“clean energy” investment tax credit took effect on January 1, 2025, and returns
to the placed-in-service standard of applicable energy standard. This means that
projects that have broken ground before January 1st and met safe harbors through
either the physical work test or continuous efforts test — where the taxpayer
incurs at least 5 percent of total project costs and continued their work
without undue delay — should maintain their eligibility for credits, even if
future policy changes occur.
As for the future, the energy-credit regime has never experienced a retroactive
rollback throughout its history. Typically, tax extenders with a built-in sunset
date (currently beginning phase-out in 2032) do not have the expiration date cut
short but instead are allowed to sunset without further extensions.
The political economy of clean energy
The clean-energy transition has created an unexpected political dynamic:
Republican-represented districts have become the primary beneficiaries of
IRA-driven investments. Data
show that 19
of the top 20 congressional districts receiving job creation and private
investment from IRA provisions are Republican held. Overall, approximately 72
percent of all jobs and 86 percent of investments announced to date are in
Republican districts. With such a slim majority in the House, it is unlikely
that a major repeal of the energy-credit regime will be able to get the
requisite votes.
House Speaker Mike Johnson recently
stated
that the approach toward repeal of IRA provisions will be somewhere “between a
scalpel and a sledgehammer.” Further, most of the new administration’s
energy-policy changes are more likely to relate to fossil
fuels. This was
demonstrated with the executive order entitled “Unleashing American
Energy,”
which cut grants for electronic vehicles (EVs) (e.g. the scalpel) but also
included major policy changes around fossil fuels (e.g. the sledgehammer) that
pave the way for private investment.
Credit transferability: Simplifying the capital stack
The renewable-energy industry's growth under the
IRA
is supported from Section 6418's transferability
provision.
This mechanism has transformed project financing by enabling developers to sell
tax credits directly to entities with appetite, dramatically simplifying tax
credit monetization.
If this provision were eliminated, the industry would face a substantial setback
— extracting many corporate taxpayers from the capital stack of clean-energy
project finance. Developers would again need to rely on relationships with
traditional tax-equity investors and restructure portions of their project
financing approaches. The growing interest in hybrid, transfer flip tax-equity
partnerships
has expanded the industry’s comfort and familiarity with complex partnership
structures, however; and the audience for traditional tax equity has grown since
before Section 6418’s enactment.
Similarly, Section 6417's direct-pay provision has opened clean-energy
development to previously excluded entities including government entities,
nonprofits, municipalities and educational institutions. Its elimination would
close an important avenue for community-based renewable-energy
development.
Technology-specific outlook
The administration's approach is likely to vary significantly by technology:
-
Electric vehicles: EV credits face the highest risk of modification or
elimination, with the administration already pulling back Department of
Energy (DOE) grants for charging infrastructure through the
"Unleashing American Energy" order.
-
Traditional renewables: ITCs and
PTCs for solar and wind
may face less opposition than EV incentives, particularly given their
economic impact in Republican districts.
-
Carbon capture and
storage:
This technology aligns with the administration's "all of the above" energy
approach and has previously received its support. CCS incentives could
potentially see enhancement, rather than reduction.
-
Combustion & gasification: New technologies such as
CoGen
relying upon combustion or gasification through alternative fuel sources
such as
RNG
will require a new provisional emissions rating (or PER) through the DOE in
order to qualify.
-
Nuclear:
The administration may expand support beyond the existing Section 45U
credit, potentially encouraging new nuclear plant development as part of its
energy-independence strategy. Many believe that nuclear
thorium,
which is four times more abundant than uranium and produces less radioactive
waste, could be the technological and scientific breakthrough needed to see a
clean-energy future.
Energy reality: Meeting the AI demand
A critical factor in the administration's clean-energy policy is the $500
billion Project
Stargate initiative
for data centers and artificial intelligence infrastructure. This ambitious
program will require massive energy-capacity expansion across all sources. Every
ounce of energy will be needed to power the AI revolution — creating practical
incentives to maintain clean-energy development alongside fossil fuel expansion.
Historically, data centers have been extremely energy hungry; thus, the US will
need every bit of energy available — whether clean or fossil-based. “Addition”
rather than “Transition” is likely the state of play for clean energy.
State-level response limited
If federal incentives are reduced, state policies are unlikely to fill the void
completely — few states have implemented comparably robust clean-energy tax
incentives. Those that exist, such as South Carolina's $35,000-capped
solar incentive or Illinois'
Enterprise Zone
Program,
lack the scale needed to drive major development.
The limited state response underscores the critical importance of federal tax
policy for industry growth and reinforces the need for developers to engage in
policy discussions at the national level.
Strategic industry response
For the clean-energy industry, several strategic approaches may help navigate
the uncertain policy landscape:
-
Project safe harbors: Take full advantage of safe harbors and accelerate
the rate of construction where possible. Completing the beginning of
construction requirements for projects in 2025 provides the strongest
protection against potential future changes, as any repeal or modification
to current legislation could be safe harbored and unlikely to impact ongoing
project development. A full repeal with retroactive provisions could still
eliminate benefits; but the ongoing development of planned projects across
the industry demonstrates comfort that this risk is minimal.
-
Diversify technology portfolios: Companies with investments across
multiple clean-energy technologies may better weather technology-specific
policy changes.
-
Emphasize economic benefits: The industry should continue highlighting
job creation and other investment
impacts,
particularly in Republican-represented districts.
-
Prepare alternative-financing models: Developers should maintain
relationships with traditional tax-equity providers as a contingency if
transferability provisions change.
-
Monitor regulatory developments: Recent IRS and Treasury regulations (over
200 pages for Section 48 and 400 pages for Section 48E) demonstrate the
complex and evolving implementation of these credits.
Looking ahead
While uncertainty exists, the clean-energy industry has demonstrated remarkable
resilience through previous policy transitions. The economic
momentum,
technological
advances
and other market forces supporting renewable
energy
create powerful incentives for policy stability — even amid changing political
dynamics.
By understanding the nuanced interplay between tax policy, economic realities
and energy demands, industry stakeholders can make informed decisions while
advocating for policies that support continued clean-energy growth and
development.
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Principal and Practice Leader - Income Tax, Ryan LLC and Ryan Tax Capital
Ryan Tax Capital
Published Mar 12, 2025 8am EDT / 5am PDT / 12pm GMT / 1pm CET