By David Boyce, CEO Greencoat, North America
Fears about the adverse impact the Trump administration will have on the renewable energy sector in the US may be overstated.
When assessing the impact that Donald Trump’s second term in office could have on the renewable energy sector, there are several key points, along with a few caveats, to bear in mind. Admittedly, though, developments are moving fast, so the following reflects our views of where things stand at the time of this writing.
1. Campaign rhetoric doesn't necessarily translate directly into federal action
With the energy transition, in particular, it has always been the case that pledges politicians make on the campaign trail do not track with the action they take once in office. During the presidential campaign, Donald Trump often expressed his support for the oil and coal industries. He also vowed to end subsidies for alternative energy sources. With those comments, he was speaking directly to his voters, many of whom are sceptical about the benefits of renewable energy. Promises that candidates make during campaigns cannot be viewed as a blueprint for legislative or regulatory policy. Until further executive orders are issued or legislation is introduced, any projections of what the new administration will do is purely speculation.
In the past, including the period of Trump’s previous administration, legislation to support renewable energy had strong bipartisan support. That reality is reflected in the two states that are leading the energy transition in the United States. One is California, a state where politicians and voters have embraced renewables. It may surprise some to discover that the other state is Texas. While its political leaders and residents are considered to be strong advocates of traditional energy and opponents of supporting renewables with public funds, Texas stands right alongside California as a leader in the buildout of renewable energy capacity. Economic considerations often win out over political ideology, especially with sectors as critical as energy.
2. There is no reason to ring the death knell for the Inflation Reduction Act, given who its prime beneficiaries are
One of the major achievements of the Biden Administration was the Inflation Reduction Act (IRA), which supports the energy transition in multiple ways. While the legislation may be amended, it is not likely to be repealed for a number of reasons, including the fact that Republican states greatly benefit from it.
The IRA contains key tax subsidies that foster energy production from renewable sources like wind and solar. It also bolsters manufacturers in the supply chain for renewables. Further, it provides support for emerging capabilities like carbon capture and technologies that facilitate the production, storing and utilisation of hydrogen energy.
While members of Congress who are deficit hawks or opposed to government support for renewables may help propel some reduction of the IRA’s tax subsidies, those intentions will have to be balanced against the need to avoid rolling back the considerable stimulus the IRA provided for the economy. Republican politicians’ constituents have been prime beneficiaries of that stimulus. Since the IRA passed, much of the economic investment (coming from new plants and the rising property tax revenues they create for local governments) and job creation has been in “red” states controlled at the federal and local level by Republicans. Even within “blue” states that vote for Democratic candidates at the statewide and federal level, many of the renewable projects, like wind and solar farms, are in rural areas that send Republicans to Congress.
With their “America-first” approach and Trump’s plan to impose tariffs, Republicans are unlikely to eliminate the incentives that support domestic job creation and supply chain manufacturing. That being said, many industry experts anticipate the investment in new technologies that support the energy transition may be cut, and the duration of various tax subsidies, some of which the IRA scheduled to keep in place until at least 2032, may be shortened. Still, reducing the tenure of those subsidies might have only a limited economic impact on the renewables sector, given that wind, solar and battery storage are now all cost-competitive with fossil fuels.
3. Cost considerations and companies’ commitments to sustainability will continue to drive the demand for clean energy
Demand for electricity continues to soar. One of the causes of that is the accelerating pace of electrification, as multiple sectors, from transportation to heavy industry, are shifting to electricity as a source of power. Another contributor to the increased demand is the AI revolution, which is power hungry. The data centers that process and store all those AI capabilities are heavy users of electricity, as they run their hardware and keep their facilities temperature-controlled. Given how cost-competitive wind, solar and battery storage now are with fossil fuels, local utility providers will increasingly rely on renewables to meet that demand. As an additional benefit for those utilities, the prices of renewable energy are also much less volatile than those of fossil fuels, like natural gas.
Even with the shift in the US political climate, companies, and technology companies especially, are not likely to abandon their commitment to all their stakeholders – employees, customers, and shareholders in the US and abroad – to make their operations sustainable. A big part of that commitment is to rely more on clean energy.
Currently, 38 states have renewable portfolio standards (RPS). These regulations require utilities to obtain a certain percentage of their electricity from renewable sources. It is also important to note that companies are increasingly becoming direct purchasers of power from suppliers, bypassing intermediaries such as utility companies. That trend will support demand for clean energy providers.
A few harsh truths may be unavoidable
Even while the greatest concerns about the fate of renewable energy require some perspective, it cannot be denied that the shift from the Biden to Trump administration will bring considerable challenges for the industry.
Higher tariffs will have a negative impact.
The higher tariffs that President Trump has pledged to implement will have a negative impact on the solar sector, in particular, given that Chinese manufacturers are key suppliers of solar panels and the components used in panels and with solar storage technology. Those tariffs could keep prices elevated for some time. Still, solar energy providers learned some lessons from the tariffs imposed during the previous Trump administration, and they have shifted some of that economic burden to both their suppliers and their customers who have contracted to receive power from them. That partial offsetting of costs could alleviate the disruptive impact of additional tariffs, although the rising cost burden could still render certain renewable energy projects economically unfeasible.
Looser regulations could provide a boost for fossil fuels, and reduced staffing at regulatory agencies could slow the permitting process for renewable projects.
The industry expects the Trump administration will loosen the regulations on fossil-fuel emissions. That could extend the lives of some coal assets. The more likely scenario, however, is that relaxed fuel-emission standards will foster the build-out of natural gas generators. Offshore wind projects, which President Trump has often criticised, may experience slowdowns in obtaining the environmental permits they need to proceed. If the new administration holds true to the President’s promises to reduce staffing at regulatory agencies, the permitting process for any type of renewable power project will likely see significant delays.
Other points of pressure may be brought to bear on federal implementation of the rules and regulations surrounding renewables, particularly wind.
Through executive order, Trump has thrown up a potential hurdle for wind development by calling for a temporary stoppage on federal leases and permit issuance for new wind projects, pending further study. A several-month delay is expected, but not a wholesale upheaval of well-tested processes in place for the federal agencies to perform diligence and issue permits for wind projects. The order may result in a complete stoppage of signing new land leases for wind projects on federal land or in federal waters, however. These projects represent a fairly small – under 10% – proportion of all wind development.
Conclusion: Perhaps a mixed bag, but not a worst-case scenario
While much remains to be seen about how the Trump administration rolls out its energy policies, the direst predictions about the fate of the renewables sector may not be warranted.
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