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Donald Trumps second administration has put obstacles in the way of investment in clean energy, but renewable energy analysts say superior technology and its economic benefits will eventually prevail. The second Trump administration is taking a tough approach to policy reform, not least with energy. The US president has expressed support for an all of the above approach while using the slogan drill, baby, drill and calling for an end to the electric vehicle [EV] mandate. Trump has made clear his preference for fossil fuels and his aversion to wind power and EVs. But what does he think about solar energy? The presidents Unleashing American Energy executive order loosened restrictions on the extraction of oil and rare earth minerals. The new administration has also sought to eliminate state emissions exemptions that limit sales of conventional vehicles and has considered eliminating unfair subsidies and other ill-conceived, government-imposed market distortions that favor EVs. Electric vehicles are not subject to any federal mandate. The order also calls for looser energy efficiency requirements for household appliances, citing product competition and consumer choice. In a separate order, Trump paused offshore wind lease sales in federal waters and suspended wind energy approvals, permits, and loans. Sector growth The solar industry grew 128% during Trumps first term, from 2016 to 2020, according to the trade body Solar Energy Industries Association (SEIA). It was the largest source of electric generating capacity added to the US grid by 2024. According to the US Energy Information Administration (EIA), solar accounted for more than 64% of new US grid-connected generating capacity added from January to September 2024, ahead of natural gas. “Solar energy, already a $60 billion industry, is adding more capacity to the U.S. grid than any other fuel source, amid the largest increase in electricity demand since World War II,” said Abigail Ross Hopper, president and CEO of SEIA. Market intelligence provider S&P Global Commodity Insights forecasts that clean energy investment will surpass fossil fuel spending for the first time this year, with $670 billion spent on renewable energy and green hydrogen generation, in addition to carbon capture and storage enabled by fossil fuels. Solar photovoltaics are expected to account for half of all clean technology investments and two-thirds of installed megawatts, says Edurne Zoco, executive director of clean energy technology at S&P. Storm clouds Despite such optimism, the Trump administration has raised barriers to solar energy. The president again withdrew the nation from the Paris Climate Agreement. This, along with more friendly regulation of fossil fuel extraction, could undermine the business case for photovoltaics compared to oil and gas, and give banks and investors pause. The Unleashing American Energy executive action halted grants, loans, and other financial assistance from the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act. The U.S. Treasury and market intelligence provider Rhodium Group estimate that more than $380 billion in private investments have been announced since the IRAs passage. These investments include $114 billion for solar energy, $77 billion for battery manufacturing, and $66 billion for energy storage projects. The Treasury Department said it expects the investment to support 1.5 million jobs over the next decade, based on analysis by the Labor Energy Partnership. The freeze on all federal IRA disbursements ordered by the executive order created a flurry of uncertainty, as it remains unclear what aspects of IRA funding will be halted. Since then, major manufacturers have announced cancellations or pauses in major factory investments, including Indias Premier Energies, which halted its plans to manufacture 1 GW of solar cells in the United States; Kore Power, which has planned a lithium-ion battery gigafactory in Arizona; and Freyr Battery, which plans a $2.6 billion investment in a battery factory in Georgia that would create approximately 720 new jobs. Accounting and advisory firm Baker Tilly said it remains unclear whether the pause covers all planned funding, such as IRA direct payment provisions, or applies only to federally administered grants, loans, and contracts. At the time of writing, the debate over federal disbursements continued. U.S. District Judge Loren Ali Khan placed a restraining order on the disbursement freeze, ordering the U.S. government not to pause, freeze, impede, block, cancel, or terminate the money Congress had already allocated to the states. U.S. District Judge John McConnell Jr. ordered the Trump administration to immediately restore the withheld funds, including federal funds appropriated in the Inflation Reduction Act and the Infrastructure and Jobs Improvement Act. White House representatives said they had made diligent and good faith efforts to comply with the order to resume federal funding. Judge McConnell said the administration, however, had continued to improperly freeze federal funds and refused to resume disbursement of appropriated federal funds. It remains to be seen whether the White House is acting in defiance of the federal court orders. Its also unclear what will happen to the IRA and other federal funds for clean energy. The administrations disbursement order required a 90-day suspension, from its January 20th enactment, to review all processes, policies, and programs related to grants, loans, contracts, and other financial payments. According to the order, agencies must assess whether these grants align with the administrations new energy goals. These energy goals are outlined in Section 2 of the Unleashing American Energy document. These include expanding energy exploration on federal lands and waters, prioritizing rare earth metal production, allowing federal override of state energy targets, eliminating what the order describes as the electric vehicle mandate, and promoting consumer choice in appliances and vehicles, among other goals. Budget reconciliation Although solar energy is not directly targeted by this executive order, uncertainty remains about the fate of core IRA funding, such as the 30% investment tax credit for eligible projects, the production tax credit, and other add-ons to tax credits, such as the 10% community energy credit. Much of the uncertainty could be resolved in the federal budget reconciliation process at the end of 2025. An industry note from Roth Capital Partners suggested that all IRA funds could be phased out five years early, in 2027, rather than being phased out starting in 2032. The note suggested that a Republican-led Congress could take a sledgehammer approach, squashing foundational industrial policy. However, the IRA was specifically designed to resist a Republican administration, which holds a slim majority in Congress. Approximately 80% of IRA funds go to projects in Republican-controlled districts, generating thousands of jobs and billions in investment, and making the funds more sticky to a Congress whose constituents they aim to benefit. In August 2024, some 18 members of the U.S. House of Representatives petitioned Congress to withhold IRA funds. A full repeal would create a worst-case scenario, where we would have spent billions of taxpayer dollars and received almost nothing in return, read a letter to House Speaker Mike Johnson. Now, at least eight more House Republicans have expressed support for maintaining IRA tax credits, citing job growth. Several House Republicans have testified before the Ways and Means Committee. “I urge caution in addressing the IRA provisions that have incentivized the offshoring of future automotive jobs, which brought billions of dollars in investment to the U.S. and thousands of jobs created here,” said Michigan Representative John James. “The bulk of the IRA is harmful policy; we must not neglect the energy sector tax provisions that manufacturers and job creators in my district rely on. We risk losing too many American jobs.” Iowa Representative Mariannette Miller-Meeks highlighted five tax credits she described as “drivers of transformative investments in American energy.” She recommended maintaining the 45Z credit for clean fuel production, the 45X credit for advanced manufacturing production, the 45Q credit for carbon sequestration, and the 45Y and 48E tax credits for clean energy production and investment. This Republican support for clean energy tax credits could bode well for the IRAs most critical funds. Increase in rates Amid potential cuts to IRA funding, the Trump administration has also implemented several new tariffs that are expected to increase solar energy costs and slow the energy transition. Imported solar energy resources, including polysilicon, wafers, and cells from China, are now subject to 60% tariffs under Section 301 of the Trade Act of 1974. The 10% tariffs on energy resources from Mexico and Canada, which were paused and under review in mid-February, cover solar-grade polysilicon, solar cells, and wafers, but do not include finished solar modules. A 25% tariff has also been imposed on imported steel and aluminum from most global suppliers. Aluminum is used in the framework of solar panels and accounts for approximately 14% of the cost of a finished panel, and is also used in rooftop solar frames. Steel is used in the support structures for ground-mounted solar panels. Predominance of photovoltaics Despite all the regulatory clouds cast over solar energy by the new administration, optimism remains. BloombergNEF projects the levelized cost of electricity (LCOE) for utility-scale fixed-axis solar projects to decline 2% year-over-year to $35/MWh. It expects the LCOE to decline further to $25/MWh by 2035. Battery storage costs are also expected to decline, with their LCOE falling by about 11%, from $104/MWh in 2024 to $93/MWh in 2025. Ten years later, BloombergNEF projects battery storage to cost $53/MWh, nearly half of what it costs today. BloombergNEF also reported that global investment in clean energy technology will reach a record $2.1 trillion in 2024. This represents an 11% increase from 2023 and is more than double the figure recorded in 2020. New solar plants, even without subsidies, are only a short distance from new US gas plants, notes a report by the analyst. This opens the possibility that solar energy will become even more attractive in the coming years, especially if the US begins to export liquefied natural gas and exposes its protected gas market to global price competition. Matthias Kimmel, head of energy economics at BloombergNEF, summed it up by noting that the cost-cutting trend is so strong that no one, not even President Trump, will be able to stop it. |
