US administration accelerates end of tax credits for wind and solar, raising power cost risks

A new law abruptly ends key federal tax credits for wind and solar. Energy planners warn this timing could aggravate shortages as electricity demand surges.

If your goal is to raise electricity prices, weaken the reliability of supply, and complicate the United States’ ability to meet the growing demand for electricity, you won’t find a more effective tool than sharply cutting support for the fastest-growing sources of new generation.

That is exactly the move taken by the U.S. administration: the law that took effect on Saturday accelerates the expiration of federal tax credits for wind and solar energy, signaling a sharp return to the idea of subsidies in the form of tax credits under earlier policies, as opposed to the incentives enacted by the Inflation Reduction Act.

Proponents say that this move will reduce market distortions and push renewable-energy developers to compete on the principles of market self-sufficiency.

But regardless of ideology, the practical consequence could be higher electricity prices and a more stressed power system precisely when the United States needs the opposite trend.

Energy Battle for Capacity

The main problem with today’s U.S. energy markets is not a surplus of generation but a shortage of it.

After decades of modest growth, demand for electricity is rising quickly – driven by data centers, artificial intelligence infrastructure, new manufacturing capacity, and broad electrification across sectors.

Investors, grid operators, and utilities are asking the same question: how quickly can capacity be built to avoid shortages on the grid?

The answer is likely to involve increasing generation of all types, not reducing it.

In this context, the decision to roll back support for wind and solar energy seems a strange move.

Since 2020, solar energy has been the largest source of new generation added to the American grid, while wind remains one of the largest sources of new capacity.

Even after years of deployment, developers continue to plan hundreds of gigawatts of future projects – driven by relatively low costs, technology maturity, and speed of construction.

Analysts expect solar energy to remain the dominant source of new capacity for the rest of the decade, even under less favorable political conditions.

Opposition Criticism

Critics often respond that if wind and solar energy are truly competitive, they will no longer need subsidies. Such arguments have political overtones, but electricity markets do not operate according to textbooks.

Each leading generation technology has received government support at various stages – for tax incentives, research funding, loan guarantees, or regulatory advantages.

So the question is not whether subsidies are pure in philosophy. The question is whether their removal now will truly improve market outcomes.

The point is simple: when demand grows faster than supply, prices rise. The fastest way to lower prices is to build more generation, not cut investments in new capacity.

Eliminating subtypes of subsidies does not mean that all related projects disappear from the balance sheet. If generation sources do not appear as abundantly as planned, this will reduce capacity in the market and push prices higher.

Even organizations reviewing the legislation warned that scrapping purely energy credits could jeopardize a significant portion of planned capacity and raise energy costs over time.

What Solutions?

It is not yet clear which technologies will fill the space left after such a reduction in support.

Gas generation will remain critical for the U.S. power system, but developers will have to overcome turbine manufacturing constraints, supply chains, and ever-lengthening construction timelines.

New nuclear reactors hold promise for the future, but bringing them to fruition takes years – and often decades – from planning to operation. Hydropower has limitations, and geothermal is also more narrowly utilized.

Instead, large solar farms, wind projects, and energy-storage systems can move from development to operation more quickly. Speed matters when demand is rising now, not years from now.

This policy also clashes with the government’s ambitions for AI, modern manufacturing, and preserving domestic production in the United States – everything that requires reliable, affordable electricity in large volumes.

The AI boom creates a real surge in energy demand for the electricity sector: each new data center sharply increases load on local grids and requires additional generation.

Policy makers cannot simultaneously celebrate growing energy use and, at the same time, make it harder to build the most agile sources of electricity – these goals are at odds.

The Wrong Time for Change

No one is arguing that wind and solar should exist forever without support. There is value in letting mature technologies compete on an even playing field over time. However, timing matters: ending support during a period of no excess demand has different consequences than during a period of rapid demand growth in recent decades.

The United States is now entering a period of rising energy demand, and it’s unreasonable to expect production to pause until the desired pace is reached.

In such conditions, we should seek ways to accelerate investments in generation, transmission, and energy storage across all market segments, rather than creating new barriers for two technologies that have been advancing most rapidly in recent years.

The irony is obvious: for years, policymakers from both parties warned that affordable and reliable energy is the key to economic resilience and national competitiveness. And they were right. That is why slowing development is a puzzling tactic for achieving these goals.

In sum, for the stability of the U.S. energy system it is important to accelerate investments in generation, transmission, and energy storage. Cutting support now could lead to higher costs for consumers and greater risks to reliability of supply in the future.