Proposed U.S. budget legislation aimed at phasing out renewable energy tax incentives could significantly disrupt the country’s clean energy sector, according to new analysis from energy research firm Wood Mackenzie.
The draft budget reconciliation bill, introduced by the House Ways and Means Committee, outlines plans to wind down key tax credits for solar, wind, energy storage, and clean hydrogen projects. If passed, the legislation could result in lowered forecasts across multiple sectors and place the majority of announced green hydrogen projects at risk.
“Many of the elements in the proposed House budget bill would deter the development of renewable projects in the U.S.,” said Sylvia Leyva Martinez, principal analyst at Wood Mackenzie. “While some technologies would be more affected than others, the early phase-out of tax credits, the removal of transferability, the requirement for projects to be placed in service to obtain the tax credits and the more stringent provisions on ‘foreign entities of concern’ affect the vast majority of clean energy projects in the U.S.”
Under the proposed legislation, the Investment Tax Credit (ITC) and Production Tax Credit (PTC) would remain at full value for projects placed in service by 2028, before gradually declining to 80% in 2029, 60% in 2030, 40% in 2031, and fully expiring in 2032. The bill also limits tax credit eligibility for projects involving entities classified as “foreign entities of concern,” a provision expected to particularly affect companies with links to China.
“The proposed changes would have far-reaching implications across the clean energy sector,” Leyva Martinez added. “While the bill maintains some elements like domestic content and energy community adders, the overall outlook for the industry appears challenging.”
For the wind sector, the bill introduces additional uncertainty. Senior research analyst Diego Espinosa noted that while developers may rush to qualify for PTCs—mirroring a pattern seen between 2020 and 2022—the new requirement for projects to be “placed in service,” rather than merely under construction, could restrict the development pipeline.
“We project a slight increase in wind installations, driven by the rush to qualify for the PTC,” said Espinosa. “However, the shift in terminology from ‘start of construction’ to ‘placed in service’ is expected to tighten project pipelines, thereby increasing financial risk and uncertainty.”
The onshore wind pipeline for projects scheduled between 2025 and 2027 stands at nearly 11 gigawatts, many of which may struggle to meet revised eligibility requirements.
The energy storage sector may also be impacted, particularly due to provisions that limit ITC availability after 2026 for projects involving foreign suppliers. Combined with ongoing trade tensions and tariff uncertainty with China, this could further complicate financing for battery storage development.
The bill also targets the clean hydrogen industry by proposing the termination of the clean hydrogen production tax credit. According to Wood Mackenzie, this move could jeopardize 95% of announced green hydrogen capacity in the U.S.
“Developers face a critical decision: either accelerate their projects to meet the new deadline or risk losing the tax credit entirely,” said Hector Areola, principal analyst at Wood Mackenzie. “The ongoing regulatory uncertainty threatens to stagnate the low-carbon hydrogen industry in the U.S. and could potentially alter the landscape for clean hydrogen globally.”
The legislation is still in draft form and subject to change as it moves through Congress.
