This is a direct result of the amendment imposed by the House rules committee which would sunset core tax credits for solar, wind and storage 60 days after the bill is signed into law. Projects would have to be put under construction within 60 days of the bill being signed and/or placed into service by December 2028 in order to still qualify for the tax credit.

The original draft of the bill had proposed to sunset most of the major tax credits starting in calendar year 2029, though both the original and amended bills essentially sunset the ability to do tax credit transfers in 2027.

Overall, Segue estimates that this amounts to 245 GW of currently planned capacity that would be canceled, representing USD 371bn less investment in the US power grid. At the same time, sources such as the EIA forecast load will increase by 125-150 GW to replace the capacity of existing power plants slated for retirement.

The report argues that the canceled projects would represent one-third of planned generation across all technologies.

“Utilities and grid operators are already struggling to reconcile the two competing priorities i) facilitating this load growth (which is essential for regional and national economic growth) and ii) keeping consumer electricity costs from spiraling out of control,” the report reads. “The only real solution is to build more generators as quickly as possible; canceling one-third of planned generators does not help.”

Initial pitch

The initial draft of the bill from the House Ways and Means Committee, released on May 12, presented a much softer landing. The PTC (section 45 and 45Y) and ITC (section 48E) would have started to sunset on all projects built after December 31, 2028, then sunset fully in 2032.

Segue said this would result in far less cancelled projects as they forecast only 91 GW or USD 138bn in cancelled investments as opposed to 245 GW or USD 371bn under the bill that passed, HR-1.

The larger impact would have been felt in 2029-to-2031 in the original draft as both major tax credits would have reduced in those successive three years.

In HR-1, the effects are immediate as offtakers would seek to cancel contracts and back out of the market, rather than renegotiate drastically higher PPA prices. Segue notes the ongoing demand for power eventually will bring offtakers back to the table, but it would be hard for the market to recover.

When broken down, Segue forecasts 121 GW of solar would be cancelled, 38 GW of wind and 84.7 GW of storage, of which much of the cancellation would come in 2027, 2028 and 2029.

Offset

In a recent interview with NPM, Doral Renewables CFO Evan Speece indicated the company would aim to safe harbor equipment for three upcoming projects its looking to finance. Enlight, on a recent investor presentation, was also looking to safe harbor equipment for Clenera Renewable Energy’s pipeline, but also believed in the longer-term market fundamentals of declining equipment costs and rising power prices to enable a “self sufficient” renewable energy market by 2029.

However, Segue considers these cases to be in the minority as safe-harboring is very cost- and resource-intensive.

Eventually, it is “reasonable to expect a mostly price inelastic load/demand side to accept the pass through of costs,” said David Riester, managing partner at Segue, in an interview with NPM. “The problem is what happens on the way there – a period during which we face a severe sequencing problem.”

The bill “in effect, asks project owners/investors to make decisions (take risks, spend money) well in advance of knowing to what extent – and when – the expected increased prices would manifest themselves,” he said.

“Developers wield little control over project timelines as it is, and now HR-1 would force developers to take the additional risk gambling on that timeline lining up favorably with the window in which a project can contract at higher price points,” added Riester.