Assessing fresh political perils for renewable energy ventures
The One Big Beautiful Bill Act (OBBBBA), signed into law in July 2025, significantly accelerates the phase-out of clean energy tax credits established by the Inflation Reduction Act (IRA). This legislation has major impacts on renewable energy development in the U.S., particularly in the areas of wind and solar projects, electric vehicles, and foreign involvement.
Key impacts include:
- Accelerated expiration of tax credits for wind and solar projects: Projects must now be operational by the end of 2027 to qualify for the primary technology-neutral Investment Tax Credit (ITC, Section 48E) and Production Tax Credit (PTC, Section 45Y). This is a significant shift from the previous 2033 deadline under the IRA, which may decrease investment in these mature clean energy sources just as U.S. electricity demand is projected to rise.
- Restrictions on foreign supply chains: The OBBBA introduces "prohibited foreign entity" (PFE) rules that bar projects and components excessively sourced from certain foreign entities from claiming tax credits, posing additional challenges for U.S. developers reliant on global supply chains.
- Changes to advanced manufacturing and clean fuel credits: The legislation revises eligibility and credit calculations for manufacturing production and clean fuel production tax credits, including reductions in wind-component eligibility and temporary credits for metallurgical coal.
- Elimination or phase-out of electric vehicle and residential clean energy credits: The Act ends commercial and residential EV tax credits after 2025, phases down individual tax credits for residential solar, charging stations, and energy-efficient homes, and terminates several EV incentives altogether by late 2025 or mid-2026. This removal is expected to slow EV adoption and reduce U.S. clean energy job creation related to EVs.
- Projected negative climate and economic impacts: Analysts estimate that the bill will increase U.S. greenhouse gas emissions by about 470 million tons by 2035—a 7% increase economy-wide compared to IRA baseline projections—and undermine hundreds of billions in clean energy investments, with added costs to households and businesses over the next decade.
In response to these uncertainties, political risk insurance and amended force majeure contract provisions are key elements in mitigating political risks for companies developing alternative energy sources. For example, Atlantic Shores Offshore Wind filed a petition to terminate its offshore renewable energy project and be released from all obligations in June 2024, citing regulatory actions taken by the Trump administration as undercutting the project's viability.
Companies should amend force majeure clauses to explicitly include "political risks" as a qualifying event to address uncertainties in today's volatile environment. The International Finance Corporation and Multilateral Investment Guarantee Agency will provide complementary support for such programs through direct investments and political risk insurance.
Over the last decade, the U.S. added more than 121 GW of utility and small-scale solar capacity, a 688% increase, and 83 GW of wind capacity, a 130% increase, according to a 2024 analysis by Climate Central. However, the OBBBA curtails the momentum in renewable energy expansion and clean transportation built by prior incentives, with accelerated credit expirations and new restrictions dampening investment and deployment of clean energy projects across the U.S.
- The accelerated expiration of tax credits for wind and solar projects, as specified in the One Big Beautiful Bill Act (OBBBBA), will require these projects to be operational by the end of 2027 in order to qualify for the Investment Tax Credit (ITC, Section 48E) and Production Tax Credit (PTC, Section 45Y), posing a challenge for the renewable energy industry, particularly considering the projected increase in U.S. electricity demand.
- The financial sector is expected to play a crucial role in mitigating political risks for companies developing alternative energy sources, with political risk insurance and amended force majeure contract provisions proving to be key elements in this process, as demonstrated by Atlantic Shores Offshore Wind's petition to terminate its offshore renewable energy project due to regulatory uncertainties.
- Despite significant advancements in renewable energy and clean transportation over the last decade, the One Big Beautiful Bill Act (OBBBBA) may pose challenges for the industry, with restrictions on foreign supply chains and changes to advanced manufacturing and clean fuel credits potentially dampening investment and deployment of clean energy projects across the U.S.
