Clean energy investors face “One Big Beautiful Bill” amid rising electricity demand

On July 4th, the One Big Beautiful Bill Act (OBBB) was signed into law, almost fully reversing the Inflation Reduction Act (IRA). In the weeks and months prior, clean energy investors had been growing increasingly concerned about what the budget reconciliation bill would mean for investments already made and projects still in the pipeline.

But as the ink dried on President Trump’s signature, many of these investors breathed a sigh of relief. The bill is an unequivocal setback for the clean energy industry, but it was not the death knell some feared, and its passage means the industry finally has a degree of certainty about the path forward. We still have conviction that the energy transition deserves representation in our clients’ investment portfolios, and we believe our long-held mantra to focus on opportunities with strong economic fundamentals has become as important as ever.

Expiring tax credits and tighter eligibility rules will slow clean energy development

For an industry that was just starting to see the spigot of IRA-incentivized capital open for renewable energy projects, electrification initiatives, and advanced domestic manufacturing facilities, the OBBB represents a major reversal. The accelerated expiration of clean energy investment and production tax credits means that solar and wind project developers will soon have to replace 30-to-50% of their financing with more costly debt and equity, significantly impacting project-level returns.

Tax credit eligibility will also be subject to increasingly strict limitations on the involvement of “foreign entities of concern,” a provision aimed clearly at China’s dominance of clean energy supply chains. As part of an agreement to secure passage of the OBBB, President Trump issued an Executive Order instructing the Internal Revenue Service to reassess, and presumably tighten, the safe-harbor rules developers use to secure tax credits.

These measures will have significant effects on the trajectory of the clean energy sector in the years to come. By 2035, relative to prior expectations, the Rhodium Group expects capital investment in clean energy to decline by $500 billion, new renewable energy generation capacity to decline by roughly 60%, and U.S. emissions to increase by roughly 20-to-80%.¹

OBBB preserves opportunities for utility-scale clean energy investments

Keep in mind that the IRA was not a bail-out of an ailing industry. It was designed to accelerate an energy transition pushed forward by irrepressible technological and economic forces. We anticipate a substantial amount of disruption in the coming years and a slowdown in investment activity, particularly after 2027, when the core clean energy tax credits effectively expire. Still, there are several reasons why we believe the bill has not eliminated the investment opportunity associated with the energy transition.

While the bill aggressively rolls back the elements of the IRA directed towards consumers—including tax credits for consumer-owned residential solar systems, heat pumps, and electric vehicles—utility-scale solar and wind projects were given more flexibility. It also leaves in place incentives that support the development of utility-scale battery storage and other emissions-free sources of baseload power, specifically nuclear and geothermal. These are all areas where our recommended real-asset investment managers, both in the public and private markets, have tended to focus their capital.

Under the provisions of the OBBB, if utility-scale developers can meet the still-to-be-finalized safe-harbor requirements in the next twelve months—admittedly a key remaining source of uncertainty—they will have an ample four years to put their projects into service.  There have been forecasts for a surge of installations in coming years as a result.²

Accelerating electricity demand creates a clear need for clean energy

Even with efficiency gains in artificial intelligence, the insatiable appetite for electrons from data centers is not expected to slow down any time soon. The International Energy Agency’s (IEA) base case forecast is that by 2030, data center electricity consumption will increase by 240 terawatt hours in the U.S., representing a 130% increase over 2024 levels.³

On the margin, the OBBB seemingly puts natural gas in a good position to satisfy that demand, but there simply is not enough supply. New natural gas power plants are facing a seven-year wait for critical parts—construction that starts today likely could not go online by 2030.⁴ As a result, the IEA forecasts that natural gas will meet just over half of data-center-driven demand through 2030. Renewables will likely be needed to supply the rest.

A new equilibrium for clean energy investments

With tax credits expiring and electricity demand expected to soar, the biggest knock-on effect of the OBBB is likely to be higher power prices. Analysis from Princeton University’s ZERO Lab and Evolved Energy Research REPEAT Project estimates that U.S. households and businesses will need to spend over $50 billion more on energy costs in 2035 as a result.⁵

Exhibit 1: Change in annual U.S. energy expenditures

As of July 2025. Source: Repeat Project

Energy Innovation, a non-partisan energy policy think tank, expects the OBBB to result in a 25% increase in wholesale prices by 2030, providing a major offset to the loss of subsidy.⁶ Indeed, after the tax credits expire in 2027, the industry will enter a new period of price discovery, in which each participant in the development value chain—from developers and construction contractors to capital providers and wholesale power purchasers—will have to adjust to the new reality.⁷

In fact, one of our recommended private real-asset managers has long argued that the repeal of the investment tax credit would be a healthy development for the solar sector, as has Jigar Shah, the former head of the Department of Energy’s Loan Programs Office under President Biden.⁸ They argue that subsidies for a mature technology like utility-scale solar, which is the lowest-cost source of power in the U.S., cause material market distortions that may actually inhibit the sector’s long-term growth. The higher financing rates that result from the loss of subsidy will put pressure on project developers to reduce costs elsewhere in the system.

The clean energy transition will adapt to OBBB changes

The grid faces enormous challenges as it struggles to reliably meet increasing demand. As we noted in our 2023 publication, Plugging Into the Energy Transition, the energy transition is an investment theme that extends well beyond solar and wind power alone. Modernizing the grid will require both high- and low-risk capital; innovations in software and hardware; and solutions on both the supply and demand sides of the grid. The OBBB may be a setback for the industry, but we believe plenty of attractive investment opportunities remain.

We thank Frances Aderhold, Ryan Malloy, and Talice Sagerer for their contributions to the preparation of this article.

 

 

 

1. https://rhg.com/research/assessing-the-impacts-of-the-final-one-big-beautiful-bill/
2. JP Morgan and Bloomberg New Energy Finance
3. https://www.iea.org/reports/energy-and-ai/energy-demand-from-ai
4. https://www.spglobal.com/commodity-insights/en/news-research/latest-news/electric-power/052025-us-gas-fired-turbine-wait-times-as-much-as-seven-years-costs-up-sharply; https://www.nytimes.com/2025/04/08/business/energy-environment/gas-turbines-power-plants.html
5. Jenkins, J., Farbes, J., & Haley, B. (2025). Impacts of the One Big Beautiful Bill On The US Energy Transition – Summary Report. REPEAT Project. https://doi.org/10.5281/zenodo.15801701
6. https://energyinnovation.org/report/updated-economic-impacts-of-u-s-senate-passed-one-big-beautiful-bill-act-energy-provisions/
7. https://www.canarymedia.com/articles/clean-energy/wind-solar-construction-trump-tax-credits
8. https://cleantechnica.com/2012/10/04/are-subsidies-holding-back-u-s-solar-deployment-cleantechnica-exclusive-from-jigar-shah/