Increasing costs for renewable power purchase agreements observed post One Big Beautiful Bill Act implementation
In the United States, the One Big Beautiful Bill Act (OBBBA) has brought about significant changes in the wind and solar energy sector. The act, which aggressively phases out and restricts tax credits for these renewable sources, has substantially affected their cost and demand for power purchase agreements (PPAs).
The bill has accelerated the expiration of incentives created under previous legislation like the Inflation Reduction Act (IRA), requiring projects to be placed in service or begin construction sooner to qualify for credits. This has led to a predicted dramatic decline in new wind and solar capacity deployment, increased costs, and uncertainty in the market.
Key impacts include:
- Phaseout of tax credits: Solar and wind energy tax credits have been aggressively phased out, with eligibility changed from “commence construction” to a much earlier “placed-in-service” deadline, effectively killing many projects still in planning and forcing accelerated timelines or cancellation.
- Reduced project incentives: Under OBBBA, wind components lost advanced manufacturing credits immediately while solar manufacturing credits continue but with tighter restrictions, resulting in reduced private investment and higher capital costs for wind and solar developers.
- Shrinking renewable capacity and increased costs: Analysts project that U.S. clean energy capacity from wind and solar could drop by as much as 59%, with New England losing over 7,300 MW of renewable capacity by 2035. This contraction is expected to raise household energy costs and reduce new project development, impacting demand for PPAs.
- Increased uncertainty and restricted eligibility: Treasury guidance now requires “physical work of a significant nature” to establish construction commencement by mid-2026. While this gives some leeway, the elimination of the 5% safe harbor after Sept. 2025 tightens the criteria, pressuring developers to accelerate work or face losing credits.
- Market reaction: Some lawmakers and industry stakeholders have expressed concerns that the bill severely curtails the federal support that underpinned rapid growth of wind and solar investment. This has created uncertainties that can reduce demand for renewable PPAs, as project economics worsen and financing becomes more challenging.
As a result, developers whose projects remain will have to charge buyers more to cover development costs in the absence of federal tax credits. Rob Collier, who oversees the energy marketplace at LevelTen, predicts that prices will continue to rise after the tax credits expire.
The number of energy projects on the market is expected to shrink due to the reconciliation bill. Offers on LevelTen's marketplace for renewable energy have increased by $2/MWh to $8/MWh since the bill's passage in July. The lowest offers on LevelTen's marketplace are rising faster than the median, and solar PPA prices are estimated to need to increase by $8/MWh to $17.50/MWh to remain economic without federal tax credits.
With almost a third of developers planning to suspend or cancel projects due to the reconciliation bill, prices for renewable energy are expected to continue rising after tax credits expire. Buyers of renewable energy sense the need to act quickly to lock in electrical supplies before prices rise further.
Buying clean energy remains a top priority for 95% of teams surveyed, and 68% of procurement teams for renewable energy feel the need to act immediately to lock in energy supply. The average cost of U.S. wind and solar power purchase agreements has increased by 4% since the passage of the One Big Beautiful Bill Act.
In summary, the One Big Beautiful Bill Act has significantly increased the effective costs and investment risks for wind and solar power projects, leading to reduced deployment, fewer new PPAs, and higher energy prices in affected regions. The act prioritizes a faster phaseout of subsidies over the previously more favorable terms under the IRA, thus dampening market demand for wind and solar energy agreements nationwide.
- Due to the changes brought by the One Big Beautiful Bill Act (OBBBA), the renewable energy industry is experiencing increased costs and uncertainty, as developers whose projects remain must charge buyers more to cover development costs in the absence of federal tax credits.
- The One Big Beautiful Bill Act has resulted in a predicted dramatic decline in new renewable energy capacity deployment, as the aggressive phasing out of tax credits and restrictive criteria for eligibility have shrunk the market, making it challenging for businesses to secure power purchase agreements (PPAs).
