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The US energy policy landscape underwent a significant shift in 2025 with the enactment of the One Big Beautiful Bill Act and issuance of related executive orders.
At the same time as the energy industry is adjusting to the new administration in the White House, demand for electricity in the US is expected to trend upwards after nearly two decades of being relatively flat1 ,driven by the data centre buildout, electrification and the onshoring of manufacturing. While the policy shift has created headwinds and bankability issues for renewables developers, demand for renewables projects is expected to continue to grow with the continued load growth spurred by data centres and electrification. Demand concerns and the need for energy reliability have also triggered a resurgence of interest in conventional energy and baseload power generation.
The demand squeeze
The International Energy Agency predicts around 40% growth in global demand for electricity by 2035, driven in part by advanced manufacturing, electric mobility and data centres.2 Electricity demand in the US is expected to increase dramatically as well, after nearly two decades of flat growth, driving an expansion in generating and storage capacity.3 Meanwhile, interconnection delays, which have been plaguing the US energy industry, have continued, and shortages of key equipment have become more pronounced.
Retail electricity prices in the US have already been increasing, in part a result of capacity prices increasing for regional transmission organisations (RTOs), which must contract for that capacity with generators. As the project costs for new build increase for developers, the cost to RTOs for that capacity has begun to climb accordingly – and in some cases dramatically, as reflected in a 22% increase in PJM capacity prices during 2025.4
Local distribution utilities and other load serving entities will ultimately pass those higher prices onto retail consumers in the form of higher electricity prices.5 This has prompted stakeholders in the industry to think creatively about ways to more efficiently bring large loads online, although ready solutions remain elusive, as evidenced by PJM's launch, and then abandonment, of a proposal to fast-track large loads such as data centres through mandatory curtailment.6
The regulatory squeeze
The July 2025 enactment of the OBBBA accelerates the phase-out of the tax credit incentives for solar and wind projects and electric vehicles. Under the OBBBA, solar and wind projects must begin construction within 12 months of enactment, ie by July 4 2026, or be placed in service by December 31 2027 to qualify for tax credits.
Additionally, the OBBBA broadened the scope of the foreign entities of concern (FEOC) restrictions, which apply to projects that begin construction after December 31 2025.
FEOC rules bar projects from claiming cleanenergy tax credits if they are owned by, controlled by, or receive material assistance from entities tied to specified foreign nations or designated as security concerns. Internal Revenue Service guidance for the implementation of expanded FEOC restrictions under the OBBBA has not yet been released, adding to the uncertainty around the availability of tax credits for projects that begin construction after December 31 2025.
Such uncertainty, coupled with the accelerated phaseout of the tax credits, has led the developers to reprioritise their development pipeline for solar projects and rush to begin construction by the end of 2025.
Tariffs add an additional layer of uncertainty. Even where projects are not directly affected by FEOC provisions, tariffs on imported modules, inverters or battery cells remain a meaningful line-item risk: sudden duties can raise equipment costs, delay deliveries, or make supply chains uneconomical.
The current administration has taken other steps that are expected to impede new solar and wind development. In January 2025, the federal government paused permitting and approval of new offshore wind projects in federal waters.7
On July 7 2025, the president issued an executive order titled "Ending Market Distorting Subsidies for Unreliable, Foreign-Controlled Energy Sources", which sought to review regulations and policies in order to cease preferential treatment of solar and wind facilities.8
On July 15 2025, the Department of the Interior issued a memorandum implementing that executive order. The memorandum imposed additional layers of review – including final review by the office of the secretary – for all decisions, actions, consultations, and other undertakings related to wind and solar energy facilities.9 Such additional review is likely to have a dilatory effect on the issuance of permits for solar and wind projects on federal lands, but may be required for projects outside of federal lands as well.10
Renewable project bankability
Regulatory shift and tariff uncertainty have raised certain issues relating to change-in-law provisions, FEOC compliance and tax credit eligibility, which are putting pressure on project bankability and in some cases pushing sponsors to be on-risk for potential additional capital requirements.
Negotiations have increased around the scope of changes in tax law, with lenders reintroducing the absence of changes in proposed tax law as a condition to funding in debt documents. Developers, offtakers, and suppliers of equipment also have extensively negotiated change-in-law provisions in commercial contracts.
In many cases, the risk of increased costs due to new tariffs has been at least partially shifted from suppliers to developers given the uncertainty around tariff policy. Some offtakers have agreed to price adjustments due to increases in tariffs, but many offtakers still refuse to accept such risk. While project finance has always relied on structured allocation of construction risk, with tariffs and supply-chain volatility, some lenders have required guarantees from sponsors to cover related cost overruns.
In the absence of clear IRS guidelines about FEOC restrictions, financings that bridge tax equity investments or tax credit transfers have required borrowers to provide representations, warranties and covenants concerning FEOC compliance.
In addition, loans made by lenders who themselves are ineligible for tax credits under the FEOC rules can cause borrowers to be ineligible for tax credits. Accordingly, in certain circumstances, borrowers are asking lenders to provide representations and warranties regarding their status under the FEOC rules (namely that they are not "specified foreign entities").
The practical consequences are that both borrowers and lenders are engaging in legal due diligence and requiring each other to provide contractual protections. Following the release of IRS guidance, fact-based diligence may become more prevalent (as opposed to relying on legal conclusions as to a party's status under the FEOC rules in representations and warranties).
In many cases, the risk of increased costs due to new tariffs has been at least partially shifted from suppliers to developers given the uncertainty around tariff policy
Certainly as to eligibility for tax credits, the July 4 2026 and December 31 2027 cliffs under the OBBBA are likely to impact the availability of bridge financing sized against expected tax equity or tax credit transfers. Since lenders will require a buffer period in advance of those cliffs, sufficient to take remedial action to procure such investment (in the absence of a developer successfully procuring the same), the tightening of available debt capital, and potentially requirements for related sponsor guarantees, should begin to impact project timelines and economics well in advance of those dates.
Private credit
While the demand for funding power generating projects has been growing amidst the growth of regulatory and policy risks, private credit has surged into the power and renewables space, offering flexible debt products that can bridge gaps left by constrained commercial banks.
Private credit lenders can offer patient capital, underwriting to hold their loans, even through temporary extrinsic market challenges; sector-focused capabilities to diligence and structure for complex projects; a willingness to accept construction period complexity, and apply creative structures such as delayed-draw borrowing base facilities for project development costs or quasi-equity instruments that can sit alongside tax equity; and a conviction to close amidst volatility, which derives from each of the factors above. Especially during a period of market uncertainty, private credit's conviction to execute will continue to make such lenders an attractive source of capital.
However, private credit funds still require strong structural protections – covenant packages, security interests, and strict change-in-law notice/cure regimes – and private credit may not fill every gap. Particularly for projects that remain reliant upon tax equity or tax credit transfers to drive a meaningful portion of projects' cash equity returns, permanent tax attributes will remain their primary economic driver.
Near-term outlook
Renewable power –We anticipate a growing divide in the coming year between renewable power developers. On the one hand, well-capitalised and experienced renewables developers that own projects with clean, FEOC-compliant supply lines and robust offtake arrangements will continue to attract financing at competitive pricing. Hybrid solar plus longer-duration storage projects, which serve both capacity and firming needs, should be particularly bankable.
Further, given the increasing cost-competitiveness of renewable power and rising demand for electricity, which is driving up offtake prices, a smaller but growing number of renewables projects may have long-term viability even without tax credits. Indeed, projects that forego tax credits may have greater access to cheaper equipment, since those projects will not be required to comply with the FEOC restrictions. As offtake agreements are priced up, there will also be further opportunities for project financing to fill the gap left by tax equity
There is likely to be some consolidation in the market, in favour of well-capitalised developers and their sponsors, particularly those whose pipelines of projects are supported by economics that are less reliant on tax credits.
On the other hand, marginal projects that depend on uncertain imports, thin margins or speculative merchant risk will face higher financing costs or fail to reach financial close. For projects for which sufficient economic capital is no longer expected to be available given the project's timeline, and which are unable to reprice, those may be marked down or sold, leading to opportunities for selective acquisitions. There is likely to be some consolidation in the market, in favour of well-capitalised developers and their sponsors, particularly those whose pipelines of projects are supported by economics that are less reliant on tax credits.
Conventional power – There is a near-term resurgence of interest in dispatchable resources – eg, fast-start gas peakers, combined-cycle plants with hydrogen readiness – that can integrate with renewables to meet the load profile associated with large-load data centres, as well as other clean fuel sources such as geothermal and nuclear. Some lenders and offtakers find conventional capacity easier to underwrite because it avoids the uncertainty and complexity of tax credits and FEOC compliance. However, conventional projects must still face decarbonisation politics, potential future carbon pricing, and stringent environmental permitting – all factors that complicate long-dated financing.
Moreover, due to a worldwide shortage of natural gas turbines, wait times for large turbines are now often five years or more, with major manufacturers still hesitant to add new manufacturing capacity.11
That shortage compromises the ability of natural gas projects to serve the immediate demand for electricity, in particular for data centres that highly prioritize "speed to power". The shortage may pose a significant constraint on the ability of gas-fired projects to achieve viability and secure financing. In fact, we already see a growing interest among data centre developers in installing reciprocating engines or smaller, mobile gas generators behind the meter, often as a stopgap solution until utility-scale gas generation and/or grid connection is available.
Conclusion
The confluence of rising electrification (and AIdriven demand), FEOC and tariff-driven regulatory complexity, and an active private capital market has reshaped the bankability equation for power projects.
The winners will be project developers who can align disciplined supply-chain management and FEOC compliance, or invest forward into new baseload opportunities, with flexible financing solutions, leaning on private credit where appropriate, while protecting their core economics through thoughtful contractual drafting.
Footnotes
1 - US Energy Information Administration, In-Brief Analysis, May 13, 2025, https://www.eia.gov/todayinenergy/detail.php?id=65264
2 - International Energy Agency, World Energy Outlook 2025, https://www.iea.org/reports/world-energy-outlook-2025
3 - US National Power Demand Study, March 7, 2025, https://cleanpower.org/wp-content/uploads/gateway/2025/03/US_National_Power_Demand_Study_2025_ExecSummary.pdf
4 - PJM, 2026/2027 Base Residual Auction Report, July 22, 2025, https://www.pjm.com/-/media/DotCom/markets-ops/rpm/rpm-auction-info/2026-2027/2026-2027-bra-report.pdf (2026/27 resource clearing price of $329.17 vs $269.92 for 2025/26); UtilityDive, Dive Brief (July 23, 2025), https://www.utilitydive.com/news/pjm-interconnection-capacity-auction-prices/753798/
5 - Utility supply rates have increased across the PJM region between 5% and 44%. Grid Shopper, "PJM Capacity Costs Drive Major Utility Rate Increases" last updated December 1, 2025, https://gridshopper.com/blog/pjm-capacity-auction
6 - NRDC, Large Load CIFP, NRDC Solution Components, https://www.pjm.com/-/media/DotCom/committees-groups/cifplla/2025/20251014/20251014-item-03c---nrdc-proposed-options.pdf. Indeed, the Department of Energy entered the fray in October 2025 with an Advance Notice of Proposed Rulemaking directing the Federal Energy Regulatory Commission to solicit comments with respect to a broad set of proposals intended to accelerate the interconnection of loads greater than 20 megawatts. FERC, Advance Notice of Proposed Rulemaking, October 23, 2025, https://www.energy.gov/sites/default/files/2025-10/403%20Large%20Loads%20Letter.pdf
7 - Nichola Groom, Reuters, "A Timeline of Trump's Moves to Dismantle the US Wind and Solar Energy Industries" August 27, 2025, https://www.reuters.com/sustainability/boards-policyregulation/timeline-trumps-moves-dismantle-us-wind-solarenergy-industries-2025-08-26/
8 - Executive Order 14315, July 7, 2025, https://www.federalregister.gov/documents/2025/07/10/2025-12961/endingmarket-distorting-subsidies-for-unreliable-foreign-controlledenergy-sources
9 - US Department of the Interior, Memorandum, July 15, 2025, https://www.doi.gov/media/document/departmental-reviewprocedures-decisions-actions-consultations-and-other
10 - For example, for projects outside federal lands where an offtaker or interconnection provider is a federal instrumentality, regulations under the National Environmental Policy Act ("NEPA") require the federal instrumentality to consult with the US Fish and Wildlife Service. Delays to such consultations may result in missed deadlines or other consequences for new solar and wind development requiring NEPA review.
11 - Mark Shenk, Reuters, "Rush for US Gas Plants Drives Up Costs, Lead Times", July 21, 2025, https://www.reuters.com/business/energy/rush-us-gas-plants-drives-up-costs-leadtimes-2025-07-21/; Jared Anderson, S&P Global, "US Gas-Fired Turbine Wait Times as Much as Seven Years; Costs Up Sharply", May 20, 2025, https://www.spglobal.com/commodity-insights/en/news-research/latest-news/electric-power/052025-us-gas-firedturbine-wait-times-as-much-as-seven-years-costs-up-sharply
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