Development and financing of renewable energy resources have grown more unpredictable since the US Supreme Court overturned a 40-year-old administrative law doctrine in a ruling that heightens concerns about federal tax credits' longevity.
The Inflation Reduction Act (IRA), which established financial incentives that have transformed the renewables sector, is already at risk of at least a partial repeal if a Republican trifecta takes power in 2025. The legislation could also be a legal target now that the Supreme Court's decision to terminate the doctrine, known as Chevron deference, is expected to upend agency rulemaking efforts across the US government.
"We all want certainty as much as possible, and if we can't get certainty we need to get comfortable either by contractual mitigation or major diligence" with regard to project finance and dealmaking, Mona Dajani, Baker Botts LLP's global co-chair of energy infrastructure and hydrogen, said in an interview. "I don't think the IRA is going away ... but this certainly introduces an avalanche of [potential] lawsuits."
President Joe Biden's marquee climate and energy policy, the IRA includes roughly $800 billion to $1.2 trillion in tax incentives over 10 years for a wide range of low- to zero-carbon technologies, according to federal government and private sector estimates.
Former President Donald Trump has blasted elements of the IRA, and his 2024 campaign website says he would "eliminate the socialist Green New Deal." A coalition of conservative groups led by former Trump administration officials is explicitly calling for full IRA repeal.
In 2025 alone, 81,775 MW of renewables projects are expected to come online, according to an analysis of S&P Global Commodity Insights data. Over 60% of those projects are planned and permitted but have not yet been financed.
The end of Chevron deference puts the tax credits under an even larger microscope, according to Anna Mosby, head of global climate policy at Commodity Insights.
"An environment has been created that puts many of the Inflation Reduction Act provisions into question where there is any ambiguity whatsoever, including definitions of terms that aren't clearly stated," Mosby wrote in a July 3 report. "Thus, more litigation is likely, particularly around the Internal Revenue Service's guidance documents for IRA tax credits."
ClearView Energy Partners Managing Director Timothy Fox agreed, writing in an email that "the Treasury Department may face a tougher fight in defending its interpretation of IRA guidance" absent Chevron deference and that legislative "revision risk may be underappreciated."
Residential solar developers face "severe" risk, while onshore wind and utility-scale solar developers could see "significant" downside, research analysts at investment bank Piper Sandler & Co. wrote in a July 15 report attempting to calculate the economic impact of a partial IRA repeal.
"Under a partial repeal where supply-side credits are maintained, we'd expect the inverter [original equipment manufacturers] to share credits with installers; however, this would be insufficient to offset the decline in activity," Piper Sandler analysts wrote. "A full/partial IRA repeal results in a reset in activity along with a reset in corporate margins."
If manufacturing credits remain in place, Piper Sandler added, utility-scale solar original equipment manufacturers could still use them to "reduce project costs, which could potentially insulate activity levels."
If Trump wins a second term, new offshore wind projects will likely not advance through the federal permitting process, regardless of any tax credit repeals, ClearView's Fox said in a June interview.
FERC jurisdiction in limbo
The Federal Energy Regulatory Commission's role in regulating power purchase agreements and revenues for qualifying small power production facilities (QFs) — which include plants generating no greater than 80 MW of wind, solar, geothermal or cogeneration resources — has already been challenged.
The Supreme Court on July 2 vacated and remanded a lower court's decision to back FERC for interpretation of the Public Utility Regulatory Policies Act (PURPA) in light of the Loper Bright Enterprises v. Raimondo ruling that overturned Chevron deference. PURPA requires incumbent utilities to purchase electricity from QFs at a cost equal to what they would pay to buy the power from other sources or generate it themselves, known as the utility's avoided cost.
NorthWestern Corp., a subsidiary of NorthWestern Energy Group Inc., filed the underlying appeal at the US Court of Appeals for the DC Circuit in July 2021 after FERC denied rehearing requests in a certification proceeding (QF17-454) for a solar-plus-storage facility with 160 MW of nameplate capacity.
The developer, Engie SA subsidiary Broadview Solar LLC, had sought FERC's approval to certify the planned Broadview IV Solar Project in Yellowstone County, Mont., as a QF under PURPA because its maximum net power production as measured at the point of interconnection with NorthWestern-owned transmission lines would not exceed 80 MW.
Investor-owned utility trade group Edison Electric Institute and NorthWestern petitioned for Supreme Court review in June 2023 after a three-judge panel for the DC Circuit invoked Chevron in deferring to FERC's interpretation of the law, which set aside a previous order denying the application.
"The case is emblematic of the most poignant issue that I think will come up in the project finance world," Milbank LLP attorney Jenna McGrath, who specializes in energy and infrastructure project finance, said in an interview. "Some of the assumptions about the revenues and the offtake access that a project will have could be in limbo for much longer periods of time."