Does Solar and Wind Projects Really Need Tax Credits
We surmise that solar and wind projects might still be feasible without tax credits
The One Big Beautiful Bill will terminate most solar and wind power tax credits for systems that are placed in service after December 31, 2027. There is a safe harbor for certain projects that may push out the date a few years but for most projects it will end after December 31, 2027.
There is a lot of angst in the solar and wind industry due to the expiration of these credits but is it really warranted.
Let’s review some of the reasons why there will still be solar and wind projects without tax credits.
First, AI is going to require a lot of new power to come online and likely that power will be generated by solar and wind. Politically it is difficult to get new coal power projects online and any new nuclear power plants are several years away.
Also, how valuable is the 30% tax credit. In order to receive the 30% tax credit, the project must pay prevailing wages and have a qualified apprenticeship program. This can easily add 10-20% of extra labor costs to the project.
The cost basis of the project must be reduced by 50% of the tax credit. If the owners are in a 30% tax combined federal and state tax bracket, this reduces the value by about 4.5% for a 30% investment tax credit.
The cost of solar wafers and other related products have dropped dramatically over the last several years and even if we apply 25% or higher tariffs to these products, the cost of doing a new solar project still should be much lower than it was 10 years ago even including no tax credit.
We may be wrong, but we believe that solar and wind projects will continue at a rapid pace just to keep up with AI demand and they will be just fine without the tax credits.