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Senate Republicans released a draft budget on Monday that presents a slightly less draconian prescription for clean energy tax credits than what the House had put forth.
In May, House Republicans voted to slash all the clean power credits, with some favorable treatment for nuclear plants. The Senate took a more nuanced approach, doing away with credits for cheap but intermittent resources, while continuing to incentivize projects that can generate power on demand.
The Senate version would crank down investment and production tax credits for wind and solar power starting in 2026, reducing them to zero by 2028. But the Senate Finance Committee threw a lifeline to other zero-carbon power plants, allowing hydropower, geothermal, and nuclear to keep their full credits until 2033. Crucially, energy storage was included in that group, which could help grid batteries keep their meteoric growth streak going.
This effort to continue supporting “firm” power sources, which provide energy even when the sun isn’t shining and the wind isn’t blowing, could be hugely consequential for America’s ability to meet spiking demand for electricity. Companies are racing to build new power plants to serve AI computing and domestic manufacturing (two avowed priorities of the Trump administration), not to mention the widespread electrification needed to address climate change.
The problem is, nuclear construction has stagnated since the woefully delayed and over-budget Vogtle expansion; hydropower has been essentially frozen for decades; and geothermal is just starting to gain traction thanks to a handful of startups developing new technologies.
Of the Senate’s chosen few, batteries are the only contender showing real dynamism in energy markets: In just a few years, they’ve jumped from the margins to become the second-biggest source of new power capacity added to the U.S. grid each year, after solar. Energy storage dominates the queues of projects waiting to hook up to the grid in the next few years in places like California and Texas.
The Senate still needs to debate this proposal and see if it rallies enough votes to pass. Then the Senate and House will have to reconcile their differences. There’s no way to know if the current Senate language will become the law of the land.
Nonetheless, this proposal changes the political landscape for clean energy advocates, by splitting clean energy into winners and losers. It also tacks on requirements around foreign influence that seem conceptually more workable than the House’s “poison pill” approach, but that could still thwart actual construction.
The idea of excluding wind and solar from receiving credits has been percolating over the last few months, though it was easy to miss in a generally turbulent news cycle. In April, U.S. Rep. Julie Fedorchak, a Republican from North Dakota, introduced a bill that she dubbed the “Ending Intermittent Energy Subsidies Act.”
“Wind and solar are no longer emerging technologies—they’re mature, market-proven, and widely deployed,” Fedorchak said in a statement at the time. “As all the grid operators are saying, we need more dispatchable resources. We must stop providing generous incentives that run contrary to that.”
The legislation didn’t get much attention at the time, and Fedorchak’s House colleagues yanked support from several of the dispatchable options anyway. But she had some historical facts on her side: Wind and solar have enjoyed federal tax structures since the George W. Bush era (incentives for wind actually go back further), when they emerged as a broadly supported Republican energy policy. Storage didn’t get its own tax credit until the Inflation Reduction Act kicked in for 2023. The technology is clearly the newest of the major power-sector players (excluding the nonexistent nuclear fusion and small modular reactor projects).
On June 3, a cohort of clean, dispatchable power providers chimed in on the debate with a letter noting that they can offer exactly the kind of on-demand power Republican senators seem to appreciate.
“Nuclear energy, geothermal, hydropower, and energy storage stand ready to deliver that reliable power,” said the group, which included novel storage startups Form Energy and Hydrostor, along with geothermal, nuclear, and hydro firms. “We believe it is possible to advance genuine deficit reduction without sacrificing the reliable, innovative power that American households, businesses, and national security require.”
They never said to throw wind and solar under the bus, but emphasized the particular value in keeping credits for dispatchable resources as senators decided where to cut spending.
The House, besides greatly shrinking the timeline for clean energy tax credits, tacked on new requirements that industry insiders decried as impossible to fulfill. The language would block incentives for projects that include any components from a “prohibited foreign entity,” legislative jargon which basically means companies in China. The state of globalized supply chains makes it effectively impossible to build a power plant with that constraint.
The Senate shares the concern about tax credits accruing to Chinese companies, but handled it differently. In its version, the company filing for tax credits cannot be literally or effectively controlled by prohibited foreign entities — that’s a test that U.S.-based developers should, in theory, have no trouble passing. But the text gets very specific on what kinds of arrangements could constitute “effective control” of a project, and calls for the Treasury secretary to issue guidance on how to qualify. That creates ample opportunities for U.S.-controlled storage companies that fulfill the spirit of the law to run afoul of certain sub-clauses.
Additionally, developers must spend a certain amount of the total project cost on products that are not from “foreign entities of concern.” The ratio starts at 40% in 2026, and increases annually from there. Lithium-ion batteries still largely come from China; if a project has to buy those, but can secure the remaining equipment for the power plant from the U.S., they may be able to hit the right ratio. On paper, this rule seems more achievable than the House version, which would penalize firms that use even small, low-value pieces like bolts or cables that originate from China, rather than focusing on critical, high-value components.
Of course, tax credit compliance is the province of well-paid lawyers, who would need to translate the details of the Senate language into actionable legal guidance for companies. The clean energy industry is still reeling from yearslong rulemakings at the Internal Revenue Service that held back many of the investments championed by the Biden administration. Today, the Trump administration has winnowed civil service staff and actively opposed clean energy; it’s hard to imagine IRS rulemaking moving more swiftly under those circumstances.
Storage developers are frantically running the numbers on whether their power plant designs can stay within the guidelines for foreign components, so that they’ll qualify for the tax credits. They also need their financiers to feel confident that they will. Highly prescriptive legislative interference in a high-tech business landscape complicates that process, and could cause investors to pull back until the dust clears.
That’s not to say battery construction will come to a halt without workable incentives. It’s arguably the only dispatchable technology that can be built quickly in the next few years. But saddling the credits with additional bureaucratic requirements would inject extra costs and delays into the industry, at a time when the U.S. desperately needs all the on-demand power it can get.
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