US wind and solar: bent but not broken

In truth, the Inflation Reduction Act and the tax subsidies it extended were not a radically new idea in the cleaning up of US power supply – nor is the ‘Big Beautiful Bill’ a death knell for US renewables.

Many US renewables market participants are expressing an outsized reaction with respect to the passing of the ‘One Big Beautiful Bill’ (OBBB) and the resulting imminent elimination of federal tax subsidies for wind and solar projects. This has been further fuelled by the introduction of new administrative hurdles to development and the broader pro-fossil fuel stance of the current administration.  

Those who are panicking now, however, very likely celebrated the passage of the Inflation Reduction Act (IRA) three years ago as an ‘environmental revolution’. In truth, the IRA was never a radically new idea in the cleaning-up of our power supply – nor is the OBBB a death knell for US renewables. They are, instead, landmark events in the ongoing evolution of a sector that is navigating a once-in-a-generation transformation.

Back to the future: The view from 2020

We need only hearken back to the years leading up to the IRA in 2022, when the industry was facing the phase down and expiry of both the Production Tax Credit (PTC) and Investment Tax Credit (ITC) for wind and solar, to remember where these sectors sat vis-a-vis the industries’ life cycles. Both were already coming into their own as meaningful components of the US power supply; the subsidies that were solidified and extended by the IRA therefore simply expedited a process that was already well underway. 

Industry had already seen the effective cost of power from these sources plummet over the prior decade and the economics of renewables – without subsidies – were ready to compete head-to-head with fossil generation. Despite the rush to begin construction on renewables as the PTC and ITC subsidies ramped down, most observers expected wind and solar to continue to be built at some level right alongside other new power generation. 

The view from 2020: Significant renewables build-out beyond the PTC/ITC ramp down

Source: U.S Energy Information Administration – Annual Energy Outlook 2021 (Electricity Generating Capacity), Bloomberg New Energy Outlook 2024. There is no guarantee forecasts will be realized.

We have essentially returned to that point in time, with some similar dynamics: 

• The bulk of proposed new renewables should continue to offer power purchasers low-priced electricity (albeit at a higher price than with the subsidies). 
• Marginally economic renewable projects (i.e. projects that were only producing economic power with the help of the subsidies) will likely be abandoned or put on pause. 
• As would be consistent with the past decade of new generation coming online, we will continue to see new natural gas plants being built, although at a higher rate of deployment. 
• Utilities, corporations and state legislatures with decarbonization objectives will continue to support the current levels of new build.

Some things are different, of course, and the industry is experiencing new headwinds: 

• While final tariff values remain in flux, most market participants expect supply chain costs to increase due to tariffs. It remains unclear how domestic manufacturing will weather the uncertainty, but increased capital costs would impact the relative cost effectiveness of renewables.
• As well, US permitting red tape has put offshore wind on hold, while onshore renewables with a federal permitting nexus may suffer some timing and cost setbacks.

Demand drivers

Nonetheless, a rising tide lifts all boats. The US reliably demonstrates a ~1% increase in base demand annually. We are also projected to retire another 1% per annum of generation as existing fossil plants reach the end of their useful lives. Those percentages may seem small, but the amount of new build they represent is quite substantial. 

US energy demand is projected to grow 35-50% by 2040

Source: American Clean Power National Power Demand Study (March 2025), S&P Global Commodity Insights. Economic growth is based on economic and demographic inputs. Energy efficiency reflects cumulative incremental growth relative to 2024. Large load includes large industrial load (data centers and manufacturing) and large flexible load (electrolysers and cryptocurrency mining). There is no guarantee forecasts will be realized.

The real game changer, though, is the new data center electrical demand, which presently appears to be almost insatiable. The US cannot be a leader in technology, including AI, while making policies that, we believe, obstruct the supply of power to the industry. Or, put differently, we really do need a multi-pronged approach to solving the power supply problem. 

As a practical matter, in the near term that means deploying power generation that is “ready to go”.  For example, permitted renewables dominate advanced interconnection queues in the MISO (Midcontinent Independent System Operation) market, and thus enjoy a strategically advantaged position, with natural gas falling in right behind. Pragmatically speaking, it’s difficult to see a utility or developer championing the commercialization of new carbon-intensive coal generation, and small modular (nuclear) reactors just aren’t ready for rapid deployment at scale.

MISO active interconnection queue and anticipated operation dates

Source: Midcontinent Independent System Operation, 2024. ‘DPP’ = Definitive Planning Process. Actual operation dates may not meet the deadlines shown.

Conclusion: Back on the trendline

While current federal policy initiatives are certain to impact renewables in the US and support a partial shift to fossil fuels, future administrations will push and pull on the industry in different ways. Nonetheless, it will be difficult to buck the trendlines.

Ultimately, the US needs to meet rapidly growing domestic electrical demand – and the world, including the US, is shifting away from carbon, not towards it.  We – as a sector and a society – have resources in wind and solar that are on the trendline and that remain very economic to deploy.

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Originally Posted August 4, 2025 – US wind and solar: bent but not broken

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.