Trump’s budget reconciliation bill looks like it could take aim at the current tax credits for downstream clean energy projects, and Clean Energy Associates’ base case is that they will be phased out by the end of the year.
Many in the industry have said that a repeal of the Inflation Reduction Act’s tax credits for clean energy projects is unlikely because of the thousands of construction and manufacturing jobs those projects have created and the fact that most of the money has gone into Republican states. However, one source speaking anonymously told us that “this is the story the industry likes to tell itself”.
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Consultancy Clean Energy Associates’ senior policy analyst Christian Roselund echoed this view in a recent interview with Energy-Storage.news. We will dive into the details of that conversation further down, but in short, the firm’s base case forecast – i.e. most likely scenario – is that:
- the current investment tax credits (ITC) and production tax credits (PTC) for downstream energy storage and renewable projects will be phased out by the end of 2025
- this would mean projects have until then to start construction and lock in the tax credits for their project
- there is a lower chance, but still a possibility, that the tax credits are repealed retrospectively (dating back to 1 January 2025)
- there is a very low likelihood that projects that have started construction before 2025 will be affected by any repeal or phase-out, and an equally low likelihood that the 45X tax credits for manufacturing are repealed
Trump’s actions against clean energy incentives and funds so far
In his first week in office, president Donald Trump’s “Unleashing American Energy” executive order revealed plans to revoke Congress’ ‘Implementation of the Energy and Infrastructure Provisions of the Inflation Reduction Act (IRA) of 2022’ and ordered “all agencies shall immediately pause the disbursement of funds” administered under the IRA and other clean energy acts of the Biden era.
A follow-up memo from the White House clarified that the pausing of funds only pertained to programmes implicated by Section 2 of the order, and law firm Eversheds Sutherland said that Section 2 of the order did not contain any prohibitions on payment of tax credits.
But, as we explore further down, the upcoming budget reconciliation bill may take aim at them. The bill looks to extend the Tax Cuts and Jobs Act, and getting rid of the tax credits will in theory increase federal revenues.
As for withdrawing announced funds for upstream and downstream clean energy projects from the Department of Energy (DOE) and its Loan Programs Office (LPO), be it conditional commitments or closed loans, the legality of this remains unclear.
A source close to the LPO told Energy-Storage.news shortly after Trump’s order that “…conditional commitments are legally binding agreements, and closed loans are legally binding contracts. As with any legally binding agreement, if a party breaches that contract, they are opening themselves up to potential litigation.”
Repeal of 48E and 45Y tax credits the ‘base case’ for Clean Energy Associates (CEA)
“Everything is still highly uncertain, but our base case is that there is a phase-out of the 48E ITC and the 45Y PTC overall as of the end of 2025. Those are the technology neutral tax credits for projects that begin construction on or after 1 January, 2025,” Roselund told Energy-Storage.news.
The 48E ITC and 45Y PTC replaced the 45 ITC and 48 PTCs as of 1 January, 2025, but they are largely the same. The ITC covers 30-70% of a project’s capital expenditure, depending on a variety of factors including domestic content proportions, while the PTC pays a subsidy per kWh of energy discharged to the grid by renewable energy projects.
Roselund added: “We think some projects could be sunset at the end of 2025 or maybe 2026, meaning that under current start of construction rules, if you start construction by that point, you can still get the tax credits for that project. There is also a possibility that the 48E ITC and 45Y PTC are repealed entirely and go away, even for those projects that start construction in 2025.”
He does not, however, see any significant danger of a repeal of the pre-2025 48 ITC and 45 PTCs, describing that as “very low likelihood”.
“The reason those are likely safe is that all of this is being driven by efforts to extend the Tax Cuts and Jobs Act, for the timeframe of 2025-2034, so anything for the tax years prior to that period doesn’t impact that aim,” Roselund explained, adding that repealing the pre-2025 tax credits could damage investment certainty in the US.
So, in summary, if projects have started construction by the end of 2024, they are very likely to continue being able to leverage the ITC/PTC, and if they do so by the end of 2025, they should be okay too, in CEA’s scenarios.
Construction start is also defined as spending 5% of a project’s capex, so the order of high-voltage equipment such as transformers, which are now typically done far ahead of a project’s financial close, could qualify.
CEA also said that the 45X manufacturing tax credits for solar, batteries and other technologies should be safe.
“Similar to other market observers, we consider the Section 45X credit to be at the lowest risk of being repealed. However, any sunset or repeal of the Section 48E ITC / 45Y PTC will likely have effects on US solar and battery factories that serve the markets that depend on those tax credits,” Roselund said.
That is because the ITC includes a 10% domestic content ‘adder’, increasing the value of the ITC if the project uses domestically-manufactured technologies. To qualify, technology products need specific proportions of US manufacturing, explained here.
A pick-up in BESS project final investment decisions over the past month, as the budget reconciliation bill’s aims have become clearer, could support CEA’s base case forecast.
What happens if there is a phase-out?
We asked Tom Thunell, co-founder and COO of optimisation platform Tyba Energy, for his views on the topic and what might happen if CEA is right, and there is a phase-out.
Prefacing his answers by saying that “no one knows exactly how this will play out”, he said such a scenario would mean it would fall to states to step in, and that we could see projects fast-tracked to get in before a cut-off – but the market would continue to be strong after such a cut-off.
“If they do get phased out, it will fall to the states – so incentives may take a different flavour and be more varied, but if the US is going to power innovation and remain technologically competitive (and keep the lights on day-to-day) we need clean, reliable energy,” he said.
“If these credits are phased out, we would expect to see projects fast tracked where it makes sense – especially for companies able to effectively and efficiently model their storage projects to ensure viability,” he added.
“Even beyond that deadline, we don’t expect development to grind to a halt. The fundamental value proposition of energy storage — balancing renewable generation, providing grid services and enhancing project returns — remains strong. Companies will likely find new ways to make projects work, whether that’s through innovative financing, state incentive programmes, or more advanced revenue optimisation
strategies.”
We published Thunell’s comments on the US market more broadly in 2025 in a separate article published yesterday. He will be speaking at next week’s Energy Storage Summit USA 2025 in Dallas, as will colleagues of Christian Roselund at CEA.
Transferability M&A activity down for tax credits of 2026 and beyond
Data from tax credit transferability platform Crux meanwhile sheds some light on buyer appetite for tax credits. Energy-Storage.news believes the data could support CEA’s forecast that there is a strong risk the tax credits do not go beyond 2026, but note that Crux itself does not believe its data support’s CEA’s forecast.
“In general, buyer interest for transferable tax credits remains high. The market has historically had more demand than supply,” the firm told Energy-Storage.news, adding that it has seen a 2-3 cent increase in pricing and an increase in bids on the platform.
The 45X tax credit continues to be a big driver of demand, making up 31% of bids by total volume in Q1 2025, Crux said. Demand for 45X in 1Q2025 was more than seven times greater than new supply, up from 5x greater in 4Q 2024, the firm said. Nuclear credits also received significant activity with 13% of bid volume.
However, Crux said there has been a fall in bid volumes for projects for 2026 onwards, which we think could support CEA’s views that the incentives will not go beyond 2025.
“While bid volume on credits of 2026 or later vintages is down, we’re seeing significant activity on 2025 credits and remaining 2024 credits, likely driven by an influx of new buyers with a better sense of their books for 2024 as April 15th deadline approaches,” Crux added.
“While market participants are certainly watching for policy change, it is not determinative of market activity overall. Congress has rarely – if ever – made material changes to the tax code with adverse retroactive impacts to taxpayers.”
In a comment provided after publication of this article, the firm added: “We do not view 2026 bid activity, which is elevated relative to prompt year bidding activity at this time in 2024, as indicative that the market is concerned about the prospect for significant changes to tax law for energy and manufacturing projects. We observe some seasonal trends in the market, whereby buyers tend to be more forward looking in the fourth quarter, and backward looking in the first quarter. We have seen and continue to see robust and rising interest in forward year tax credits.”
Industry non-profit the American Council on Renewable Energy (ACORE) has published a report saying that uncertainty over tax credits could cause 84% of investors and 73% of developers to decrease their activity in clean energy in the US, as covered by our colleagues at PV Tech.
This article was amended after publication following additional comment from Crux.
