Cuts to tax credits and higher tariffs on equipment would slow the growth of wind, photovoltaic and storage.
US presidential elections are not generally decided by the televised debates between the candidates. The encounters between John F. Kennedy and Richard Nixon in 1960, the first such televised debates, many have been the only ones that had a material impact on the outcome. Vice President Kamala Harris, in the consensus view of the mainstream media in the US and around the world, outperformed against former President Donald Trump in their debate last week. But polling suggests the race for the presidency is still very close.
The ability of US presidents to affect the energy industry is often overestimated. Corporate strategies, investors’ capital allocation decisions, market conditions, technological innovation and state policies will often be more significant than the actions of the federal government. But, as discussed in last week’s note,US voters are being presented with two sharply differing visions for the future of energy, and the outcome of the elections on 5 November will have material impacts on the outlook for the sector.
One of the crucial issues is the future of tax credits and other support for low-carbon technology if former President Trump is returned to office. He has repeatedly criticised renewable energy, especially wind power, and described the Biden administration’s policies to reduce emissions as the “Green New Scam”. He has not committed to repealing all the tax credits for low-carbon energy in the 2022 Inflation Reduction Act (IRA) but has pledged to redirect all the unspent government funds allocated under that law to other infrastructure, such as roads and bridges.
Repealing the IRA tax credits would have to be achieved through legislation, and even if former President Trump retakes the White House, he might not have enough support in Congress to do it.
Last month, 18 Republican members of the House of Representatives wrote a letter to Speaker Mike Johnson, saying that although the IRA was a “deeply flawed bill”, premature repeal of the tax credits for energy “would undermine private investments and stop development that is already ongoing”. Some of those members could hold the balance of power if control of the House remains finely balanced after the election.
Some of the IRA agenda also aligns with former President Trump’s policy goals: in particular, his ambition to build up the US manufacturing base. Robert Lighthizer, who was US Trade Representative in the first Trump administration, said over the summer that a second Trump administration would at least “consider” retaining the IRA credits that support domestic manufacturing. He is being tipped as a possible Treasury secretary if Trump wins.
But whoever is in the White House, the economic agenda for the next administration is likely to be dominated by the looming expiration of the provisions of the 2017 Tax Cuts and Jobs Act. Extending the key tax cuts in that law would cost about US$4.6 trillion over the 10 years from 2025 to 2034, according to the Congressional Budget Office.
In those conditions, Congress will be under huge pressure to find savings elsewhere. That could threaten many of the energy tax credits in the IRA, with potentially significant implications for the electricity industry.
The Wood Mackenzie view: a significant threat to US renewables investment
Although we do not think an end to the IRA tax credits is the most likely outcome, our analysts have modelled a scenario for what we have called a “severe downside case”, to give an idea of what the impact could be under a second Trump administration.
In this scenario, the Production Tax Credit (PTC) and Investment Tax Credit (ITC) are phased out starting in 2029, with the bonus “adders” that can increase their value eliminated in 2026. Other issues also obstruct investment, including persistent local opposition to development, challenges to permitting and increased tariffs that drive up the cost of equipment.
Adding all those factors together, we model the impact as a drop of almost 30% in total installations of wind, solar and storage capacity in 2024-2033, relative to our base case forecast. The primary drivers of that projection are the increased cost of renewable energy resulting from the cuts to the PTC and ITC, and the higher cost of equipment. The lost investment totals about US$350 billion over that 10-year period.
In our base case forecast, the US adds an average of 71 gigawatts per year of combined solar, wind and storage capacity between now and 2033, up from about 50 GW in 2024. In the severe downside scenario, we project those installations would remain roughly flat, averaging about 51 GW a year.
Distributed solar and storage seem most at risk. We expect those markets would be hit hardest by the end of the bonus “adder” credits, because they generally have the most price-sensitive customers. Storage is particularly vulnerable to an increase in costs driven by higher tariffs, as about 90% of batteries for stationary energy storage systems are currently imported from China.
Investment in wind, solar and storage would not dry up completely. State policies and corporate goals set by utilities and large energy buyers would continue to support investment in renewables. But the pace of decarbonisation of the US grid would be significantly slower.
One offsetting factor to watch for would be a determined effort to clear away legal and regulatory obstacles to infrastructure investment. In recent weeks, former President Trump has emphasised that he wants to “blast through every bureaucratic hurdle to issue rapid approvals” for energy investments including new power plants. Effective action from the administration and Congress on this issue could potentially benefit investment in renewables as well as gas-fired and nuclear plants.
Republicans aim for a steep increase in US oil and gas production
Criticism of the Biden administration for its policies towards the US oil and gas industry has faced the obvious counter that production has been hitting record highs. Senator J.D. Vance, the Republican candidate for the vice presidency, recently clarified the Trump team’s position in an interview on CNBC.
“We’re producing a lot less crude oil than we could be producing,” he said. “If you look at what we were producing under Donald Trump, and you look at where we were headed, and you compare it under Kamala Harris, we’re producing about 3 million barrels less per day than we should be producing, if we just had smarter energy policies like we had under Donald Trump.”
In the CNBC interview, Senator Vance picked “drill baby drill” – policies to encourage an increase in oil and gas production – as his first priority for deregulation in a second Trump administration.
While there is certainly potential for US oil and gas output to grow further, and deregulation and opening new areas for development will have an impact at the margin that increases over time, federal policy is not the most important determinant of production. The cash flows and capital allocation decisions of the Majors and E&P companies are the critical factors, Wood Mackenzie analysts say, and that will continue to be the case whoever is in the White House.
Another factor could be the impact on sentiment from having an administration that is wholeheartedly supportive of the oil and gas industry, rather than advocating for a transition to lower-carbon technologies. That impact would be real for some in the industry, but difficult to quantify.
Probably the greatest impact of a change in administration would be the outlook for LNG exports. We expect the Biden administration’s “pause” on export approvals for new projects to be lifted after the election. But how quickly a new framework for approvals would be put in place by a Harris administration is still unclear. Former President Trump has said he would expedite approvals for new projects as one of his first acts in office.
In brief
Cleveland-Cliffs, a leading US steelmaker, is considering abandoning a plan to produce “green steel” despite the offer of a US$500 million grant from the Biden administration, its CEO told Politico. A decision to cancel the project and reject the grant would represent a significant blow to hopes of producing low-emissions steel in the US. Lourenco Goncalves, the Cleveland-Cliffs CEO, acknowledged he’d been unsuccessful in persuading buyers, mostly in the car industry, to pay a premium for low-emissions steel.
The difficulties facing the project also have implications for the nascent US hydrogen industry. Cleveland-Cliffs had stepped forward as a potential customer for low-carbon hydrogen from members of the proposed Midwest hydrogen hub. But the cost of converting parts of its Middletown Works mill in Ohio to use hydrogen has been estimated at US$1.6 billion, of which the Biden administration committed to covering only US$500 million. “I still have to pony up US$1.1 billion,” Goncalves said. “I’m not going to do it if the government and the general public are not really supportive of that.”
The Scottish government knows of a possible buyer for the Grangemouth refinery, the BBC reported. Petroineos, which owns the refinery, confirmed last week that it planned to shut it down next year and convert the site to an import terminal, as announced in November 2023. The company said last month that in the medium term “we forecast dramatically reduced demand for [the] key fuels we produce.”
The government of Bangladesh last week had an overdue import bill for LNG worth US$607 million, according to The Business Standard.
Italy’s government is planning legislation to allow a revival of nuclear power in the country, with a focus on new reactor technologies. Its last nuclear plant was shut down in 1990.
Other views
Keeping the LNG bandwagon rolling – Simon Flowers, Gavin Thompson and Massimo Di Odoardo
What is driving elevated prices in PJM? – Timothy Ennis
Grey area: can steel really go green? – Sushmita Vazirani and others
Geothermal energy could outperform nuclear power – The Economist
US solar manufacturing capacity has quadrupled thanks to climate law – Eric Wesoff
US Postal Service electric trucks are finally here and drivers love them – Jameson Dow
The doom spiral – Andrew Dessler
Quote of the week
“We are putting transition policy into practice, but we cannot pay the price alone… Why can the US and Saudi Arabia continue being oil suppliers and not Brazil? It’s a mismatch and often there’s a hypocritical demand from countries that don’t have oil.”
Alexandre Silveira, Brazil’s mines and energy minister, told the Financial Times that the country’s government saw no contradiction between wanting to be a leader in tackling climate change while also increasing oil production.
Chart of the week
This comes from the latest US Solar Market Insight quarterly report, produced by the Solar Energy Industries Association (SEIA) and Wood Mackenzie. It shows how solar power, already the dominant technology for installations of new generation capacity in the US, has been extending its lead. In the first half of 2024, solar accounted for two-thirds of all the new generation installed in the US. Natural gas accounted for just 2%.
Another important data point in the report is that US module manufacturing capacity increased by over 10 GW to 31.3 GW in the second quarter of 2024, as more facilities continued to come online. Take a look at the full report for a lot more detail on this and other key features of the solar market.
Ed Crooks
Senior Vice President, Thought Leadership Executive, Americas
Ed examines the forces shaping the energy industry globally.
