Post-Subsidy U.S. Solar: How OBBB Will Shape the Future of Clean Energy & Climate Impact

Beyond subsidies: finding opportunity in resilience, innovation, and realignment for the U.S. solar industry

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When the Inflation Reduction Act (IRA) rewrote the economics of clean energy, it looked like a new dawn. The U.S. solar industry raced ahead on the back of generous tax credits, manufacturing incentives, and innovative financing tools that broadened participation across developers of all sizes.

But with the passage of the “One Big Beautiful Bill” (OBBB), the sun is setting sooner than expected. The new law does what once seemed unimaginable: it rapidly winds down the ITC, PTC, Section 45X manufacturing credit, and transferability/direct pay features that had fueled record deployment.

This is not just a financial or regulatory story. Every delayed project also represents megawatts of clean power that will never reach the grid, households facing higher energy bills, and millions of tons of carbon emissions that remain uncut. Rhodium Group projects U.S. power-sector emissions could be nearly 80% higher by 2035 than under an IRA-extended scenario. OBBB is more than an accounting shift — it is an environmental pivot point.

Meanwhile, demand is rising: the IEA projects data-centre electricity use to more than double to ~945 TWh by 2030—driven largely by AI—and the U.S. EIA expects computing to become the fastest-growing load in commercial buildings, climbing from ~8% of usage in 2024 to 20% by 2050.

The question is no longer whether subsidies can sustain growth, but how solar adapts in a leaner, subsidy-light era.

What OBBB Changed

OBBB sets hard stop dates for the ITC and PTC: projects must have started construction by mid-2026 or be placed in service by the end of 2027 to qualify. Beyond that, no new projects can claim these credits. The Section 45X manufacturing credit, which had catalyzed a surge of U.S. factory announcements, is sharply curtailed. Transferability and direct pay — features that democratized tax equity by enabling smaller developers to monetize credits — will sunset within two years.

According to Princeton’s REPEAT Project, clean energy build-out will fall by 53–62% through 2035. More than $220 billion in solar, wind, and storage projects already announced but not yet built are at risk.

According to modeling reported by Axios, clean energy capacity projections for 2025–2035 fall from 1,396 GW under IRA to 606 GW under OBBB—a 57-62% decline.

Projected cumulative clean energy capacity additions (2025–2035): IRA baseline (1,396 GW) vs. OBBB (606 GW). Data: Rhodium Group. Chart: Axios.

Lessons from History

The wind industry endured multiple boom-bust cycles in the 2000s–2010s whenever the Production Tax Credit (PTC) lapsed. Installations collapsed by as much as 90% during expiration years.

Solar saw similar disruptions during ITC phasedown debates, with developers rushing to safe-harbor projects, then stalling pipelines.

Each time policy pulled the rug out, renewables stumbled. But each time, the industry adapted — and that resilience is instructive for the post-OBBB world.

Developer & Investor Reality

Without subsidies, utility-scale solar IRRs fall from double digits to around 5–7%, based on Lazard’s Levelized Cost of Energy analysis. For many project finance providers, that barely clears the hurdle rate, particularly in a high-interest-rate environment.

The loss of transferability and direct pay especially hurts small and mid-scale IPPs, narrowing the playing field to developers with balance-sheet depth.

Merchant risk returns: with fewer robust, long-tenor PPAs, developers must rely on quasi-merchant contracts or hybrid structures — viable only in regions like Texas and the Sun Belt where resources and interconnection costs are most favorable.

Manufacturing: Boom Meets Wall

The IRA spurred a wave of announcements for U.S. module, cell, and wafer factories. But according to the Clean Investment Monitor, over 80% of these facilities were not yet built when OBBB struck. Many may now be delayed or cancelled.

New restrictions on sourcing from “foreign entities of concern” complicate procurement further, raising costs and reducing the pool of bankable projects.

In short: factories rose on paper, but OBBB turned blueprints into question marks.

Capital Markets Without a Net

Tax credits aren’t just incentives — they are the backbone of clean energy finance. They enabled high leverage and attracted billions in tax equity. They also allowed for lower PPA levels that allowed for industrial leaders to join the transition.

In 2024 alone, the transferability market accounted for nearly $30 billion, with estimates of $45–50 billion in total credit monetization. With OBBB, that entire market disappears.

Lenders will now demand higher risk premiums. Equity sponsors will face thinner margins. The cost of capital rises, leverage falls, and only the strongest developers and sites remain viable.

Environmental Consequences

The environmental consequences of OBBB could be stark. By cutting off the policy scaffolding that accelerated renewable buildout, the law directly translates into higher emissions and slower progress toward climate goals. Modeling from Rhodium Group and Princeton’s REPEAT Project shows that U.S. power-sector emissions could be 19–79% higher by 2035 under OBBB than if IRA credits remained in place. In effect, billions of tons of carbon that would have been avoided are now likely to enter the atmosphere.

The composition of the U.S. electricity mix also shifts. Instead of clean generation steadily displacing coal (for example), fossil plants are kept online longer, and in some regions new gas peakers replace the stalled renewable capacity. This not only undermines national targets for 80–100% clean electricity by 2035, it also raises local pollution burdens for communities already near aging fossil infrastructure.

Consumers are not spared either. With fewer low-cost renewables entering the grid, household electricity bills are projected to rise 2–4% on average, with coal-dependent regions hit hardest. The message is clear: fewer solar projects built does not just mean lost investment potential — it means a dirtier grid, higher costs, and climate goals slipping further out of reach. And yet, even within this setback, the story is one of realignment, not retreat — solar will still play a central role, but its path forward will be harder, leaner, and more selective.

Projected additional U.S. CO₂ emissions by 2030 under OBBB: ~7 billion extra tons compared to the IRA baseline. Source: Carbon Brief / REPEAT Project.

Ways to Navigate the Regulatory Turbulence

While OBBB creates headwinds, adaptation strategies remain:

• Resilient capital structures: hybrid PPAs, merchant hedges, insurance tools;

• Site strategy: focus on lowest-LCOE geographies with favorable interconnection;

• Procurement diversification: plan for FEOC compliance and global supply volatility;

• State & corporate demand: leverage state-level RPS mandates and voluntary corporate net-zero goals;

• Scenario modeling: stress-test projects against subsidy-light IRR projections.

  
  

These measures can’t fully replace federal support, but they can preserve project viability.

The Shape of the Post-OBBB Market

A new market archetype emerges:

• Investors will be extremely picky - Fewer, larger, more resilient projects dominate;

• Regional concentration in Texas, the Sun Belt, and select Midwestern states;

• Hybridization with storage and hydrogen becomes essential;

• Corporate demand persists, though at higher cost;

• Backdrop is a wave of energy demand coming from computing sector to pack an already packed grid.

  
  

The solar map shrinks, but the survivors grow stronger.

Realignment, Not Retreat

The One Big Beautiful Bill takes the foot off the accelerator to subsidy-driven solar growth, but it doesn’t end it. Its passage ensures that the U.S. will build fewer projects, at higher cost, and with a greater share of fossil generation lingering on the grid. The environmental consequences are real: emissions will rise, air quality will suffer in coal-heavy regions, and the clean power share of U.S. electricity will fall short of national targets.

And yet, this is not a retreat, but a potential opportunity. The fundamentals of solar remain intact: technology costs continue to fall, corporate and state demand for clean energy persists, and the climate imperative is stronger than ever. What changes is the discipline required. In the post-OBBB era, only the leanest, best-sited, and most resilient projects will succeed. Developers, investors, and communities will need to innovate — blending hybrid capital structures, adapting procurement strategies, and rethinking how renewables compete without a federal safety net.

The road ahead is tougher, but not closed. The subsidy era may be over, but the solar story continues — written now through discipline, creativity, and resilience, with stakes measured not only in returns, but in carbon, climate, and the future of the U.S. energy mix.

This article was authored by Paul Sandhu, Managing Director of Prometheus, drawing on research and insights from leading energy and climate analyses.

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