Tax Credit Phaseout and Higher Rates Threaten U.S. & European Renewables

Amid growing climate urgency, renewable energy faces a new challenge: the phasing out of tax credits and rising financing costs in both the U.S. and Europe. Analysts warn these two headwinds could slow the industry’s growth just as global decarbonization efforts demand acceleration.

U.S Looming Tax Credit Cliff

In the U.S., a House budget reconciliation bill, nicknamed the "One Big Beautiful Bill," proposes an accelerated phaseout of key clean energy incentives included in the Inflation Reduction Act. Under this plan:

• Investment & Production Tax Credits (ITC/PTC): Phase out begins end-2026, with full expiration by 2028 if projects haven’t started construction (rechargenews.com, pv-magazine.com).

• Residential Solar and Clean Fuel Credits: Eliminated just six months after the bill is enacted (mayerbrown.com).

• Renewables Incentive Uncertainty: Limitations on foreign component sourcing and shortened timelines may raise construction costs and limit eligibility (reuters.com).

  
  

While developers may rush to start projects pre-credit cliff, analysts warn this creates a short-term boom followed by a longer-term slump (subscriber.politicopro.com).

Europe Rising Interest Rates Pressure Financing

European clean energy projects, especially offshore wind and solar farms, are already feeling the pressure from escalating interest rates:

• Financing Costs Surge: Higher borrowing rates in Europe are increasing project financing costs, squeezing margins and deterring new investments.

• Market Response: Leading firms like EDP Renováveis (EDPR) remain committed—planning 1.75 GW of U.S. wind capacity through 2026 despite U.S. uncertainties (energynews.pro, reuters.com)—but caution is rising.

  
  

Industry Impact

1. Investment Slowdown: With added uncertainty, large-scale projects may be delayed or canceled—especially facilities yet to initiate construction before deadlines.

2. Higher Consumer Prices: Many studies suggest without credits, electricity costs will increase, making solar and wind less competitive than fossil fuels .

3. Supply Chain Constraints: Additional FEOC rules restricting global sourcing could delay manufacturing and deployment (mayerbrown.com).

   
   

Strategies for the Sector

• Speed Up Project Timelines: Developers working aggressively to meet deadlines before credit phaseouts takes effect.

• Shift Financing Models: Embracing alternative funding, such as green bonds or captive financing, to mitigate high interest costs.

• Advocacy Efforts: Industry leaders are lobbying for more measured phaseouts and affordable financing mechanisms.

• Diversification & Localization: Companies are exploring domestic manufacturing and cross-border markets to reduce risk.

Renewables have achieved scale and cost parity, but the imminent phaseout of U.S. tax credits and elevated European financing rates pose tangible risks. Without swift policy support and innovative capital solutions, the clean-energy transition could stall—just as the planet demands it most.

_Daily Growth Insights