Renewable Energy Tax Credit Policy Should Reflect Sector Reality

Renewable energy hit a record 26% of US electricity generation in 2025, despite the rollback of clean-energy incentives. To some observers, that milestone may suggest an inevitable switch to renewables.

But today’s renewable surge may be more of a lagging indicator of yesterday’s choices rather than current policy. Projects at utility scale take years to finance, permit, and build out—meaning many wind farms and solar arrays that came online in 2025 were likely funded under the Inflation Reduction Act’s far more generous subsidy policies.

When Congress reforms energy tax credits, it should match sector realities. It would be better to adopt multi-year phaseout schedules written directly into statute than to have abrupt policy expirations that reflect the latest political developments.

Energy infrastructure is built on timelines that don’t always neatly fit political cycles. Utility-scale wind or solar projects can take from three to seven years from initial financing to full operation once all the land acquisition, permitting, environmental review, grid interconnection, and construction are complete.

That timing is important, as projects now pushing renewables to record levels were likely financed largely during the late 2010s and early 2020s, when generous investment and production tax credits were the norm and the regulatory environment was signaling long-term support for clean energy.

The policy environment for renewables has substantially changed since then. Last year’s massive tax package scaled back or eliminated hallmark Inflation Reduction Act clean-energy incentives, including investment and production tax credits that supported wind and solar development and subsidies designed to encourage electric vehicle adoption.

The result: a shift in the economics facing the next generation of projects, not an immediate halt to construction.

In capital-intensive industries, small changes in tax treatment can translate into meaningful shifts in financing costs and risk assessments. Renewable projects are typically built with a mix of equity, tax-equity partnerships, and long-term debt tied closely to the expected value of federal credits and other incentives. When those federal incentives shrink or disappear, or the regulatory environment becomes uncertain, developers must either absorb the risk or raise more expensive private capital.

That calculation shapes the investment decisions developers are making right now about where our electricity will be coming from in the early 2030s and beyond.

The test of today’s policy environment will come in the next investment cycle.

Photographer: Justin Sullivan/Getty Images

Renewable energy likely won’t suddenly become economic poison—wind and solar projects often beat fossil fuel alternatives in an all-in cost basis, as wind and solar technology costs have fallen over the past decade.

But structural cost advantages don’t eliminate investment risk. Permitting delays, interconnection backlogs, and uncertain policy signals can erode margins just like federal incentives helped provide and protect said margins when clean energy technology was in its infancy.

Regulatory uncertainty is likely adding another layer of friction. Data from federal rulemaking shows hundreds of energy-sector regulations still moving through the regulatory pipeline, with many left unresolved. Only 49% of energy-related rules proposed in 2025 have been finalized, leaving a large share of the regulatory framework governing the sector unsettled.

For an investor financing an infrastructure project designed to come online years from now and operate for decades, unresolved rulemaking and shifting tax policy send the same message: Price in the risk.

But energy statistics measure what is already operational, while investment decisions determine what will exist years from now. That lag can create misleading signals. A surge in renewable generation today can be mistaken for proof that policy rollbacks have had little effect—when the industry is still operating under old investment and risk information. Capital markets, on the other hand, can respond much more quickly. And green energy financing is down.

Lawmakers and regulatory bodies should handle the next big policy sea change a bit more delicately to stabilize long-term energy policy. Congress should avoid expiration cliffs in decision-making and adopt multi-year phaseouts. A pre-announced 10-year glide path for generation incentives would allow markets to adjust gradually rather than force developers and investors to pivot effectively overnight.

Regulatory uncertainty in the energy sector should be reduced wherever possible. Energy-sector agencies should be required to finalize or withdraw proposed rules within a fixed window—say 180 days—unless Congress explicitly grants an extension for cause.

Investment prefers clear rules and a knowable regulatory environment. Capital fears indeterminacy, and a sector facing both tax credit rollbacks and open-ended rulemaking will inevitably demand higher returns to compensate for that risk.

The test of today’s policy environment will come in the next investment cycle. If Washington wants sustained energy investment in the future—renewable or otherwise—it should legislate and regulate while considering a simple reality: Capital can adapt to almost any policy framework, but it struggles to finance policy whiplash.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social.

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