The tax reconciliation bill, if it passes in its current form, would have near-term consequences as developers rush to get projects into construction before tech-neutral tax credits sunset, while in the longer-term the debate will start to take place on who foots the bill and what developers get impacted.

Any answers from the US Senate were not expected to come right away, nor did the June 5 release of a portion of the bill from the Senate Committee of Environment and Public Works (EPW) offer much guidance.

In the interim, NPM talked to multiple industry participants in interviews, as well as heard views at its annual US Development & Financing Forum on April 29^th when it came to both sets of issues.

Short-Term Implications

HR-1 proposed to eliminate the tax-neutral investment tax credits and production tax credits, plus related adders within 60 days after President Trump approved the bill. Depending on the adders, which were also approved under the Inflation Reduction Act in 2022, it would eliminate, in some situations, the ability to use tax credits to cover up to 50% of the capex of the project’s costs. rPlus Energies announced on June 5^th, it closed a USD 500m tax equity commitment on its paired Green Rivers complex in Utah, after it initially locked in USD 1bn in project financing for the project in 2024.

“The US is unique in having tax credits as a form of incentive for investments in the renewables industry,” says Matt Shanahan, managing director atMarathon Capital and head of its Tax Equity Practice. “Once tax credits are removed, it would become an unsubsidized business, and the question is whether returns go down or offtake prices go up. Given the magnitude of the return reduction, we would expect that power prices would need to increase significantly to continue to attract capital to the sector,” he adds.

Some of the larger IPPs, following the May 22 House passage of the bill, communicated a softer landing. Clenera and Longroad Energy highlighted that they have safe-harbored several gigawatts worth of projects eligible for tax credits by the end of 2028, this way shielding themselves from tax credits reform.

“In the short term, if the bill passes in its current form, we have more clarity about the consequences,” Shanahan mentions. “It would be a tale of haves and have nots: large developers which have safe-harbored equipment will be able to access all the available credits, those that have not done it, will be at a serious competitive disadvantage with respect to securing offtake contracts.”

Also, one industry observer noted that safe harboring costs have gone up in the years following the August 2022 IRA passage, related to both the rising cost of storage and scarcity as banks had stopped financing the safe harboring of equipment.

Because the bill requires that projects begin construction within 60 days after enactment, it is likely that many small developers will compete for the same resources to meet the deadline. Sudden higher demand would lead to rising equipment prices.

The magnitude of the chaos effect in the transition period can affect developers, and the impact will be felt more by the smaller ones, with less bargaining power. Residential and C&I solar developers might be hit harder because they do not have so much equipment warehoused beyond a short term, they would be facing rapidly rising costs, says Joel Hugenberger, partner at legal firm McDermott Will & Emery.

Who foots the bill?

If policy changes trigger rising costs, the question is who will take the burden on. When inflation hit, developers started to demand renegotiation of contracts -with EPC contractors, with suppliers, and with offtakers.

Speaking at the Capital Markets Roundtable at NPM’s US Development & Finance Forum in New York City on April 29, Primergy Solar’s CEO Ty Daul discussed how the industry have changed during the last two decades.

“In 2001, there were no changes. Very few PPAs were renegotiated when having problems,” Daul said. “But offtakers have evolved over time, and going to 2021 and 2022, when we saw the inflation impacts, it has become clearer to the offtake parties that they have to be thinking about it and they need to provide flexibility if they really want to see projects off the ground. If they do not care about projects being built, they will be rigid as they can,” he added.

On the same panel Doral’s CFO Evan Speece, addressing the impactfrom tariffs on projects already under construction, indicated that his team was honoring PPA contracts in the cases that they did not have the ability to renegotiate, but were back on the table renegotiating some supply contracts that had clauses foreseeing a reopening of negotiations due to triggering events.

“On new contracts, I think that everyone on all sides around the developers’ sphere needs to be ready to accept developers asking for all of the risk to be on everyone else, because we are not going to take the risk,” Speece asserted then. “I cannot go to my board with any new contract at the moment and be open to that risk. We have clauses in our contracts saying that if there is anything new on top of that we will need to reopen negotiation, and if there is no agreement on a new price we can terminate and walk away,” he added.

Daul summed up a potential outcome of changes that impact the entire industry: “if it is an industry wide impact, offtakers should be aware that it is going to impact pricing. Most boards are not going to allow signing contracts that are not foreseeing a way out. If you are the offtaker and are feeling that a contract is not great and better to walk away from it, what is the next best alternative. This next best alternative is probably 95% likely going to have the exact same issue.”

Under the current bill, larger companies are showing the ability to steel-armor their businesses while the industry navigates the transition. After 2028, how the power, especially the renewables sector, will look like, is uncertain.

“Beyond 2028, it is anyone’s guess,” says Shanahan. “Historically, the US power demand has grown by half of the GDP, but with the AI development the load growth is exponential. Datacenters might pay up, but it is not clear that corporate buyers are willing to. The bigger impact for the grid is that the coal power plants will not shut down. And gas-fired projects cannot develop fast enough, as we understand that all the major gas turbine suppliers have four years plus wait times to deliver a new turbine,” he adds.

However, at the April 29^th event, Andrew Redinger, managing director at KeyBanc Capital Markets, points out that solar and wind will still be the cheapest option serving load growth even without the tax credits.

“Without the credits, wind and solar will remain the cheapest source of generation that we can build. Credits are not needed anymore. They served its purpose, and equipment costs would drop significantly,” he stated.