Economists predict that Texans will experience increased electricity bills and a slowdown in clean energy development over the next decade due to significant cuts to tax credits for solar and wind industries. This situation arises as Texas grapples with soaring electricity demand amidst a backdrop of economic uncertainty.
The state, which leads the nation in wind energy production and is a top contender for solar energy, faces challenges as grid operators project that the demand for electricity will continue to rise. Prior to the tax credit cuts, many solar and battery projects in Texas were already on hold or canceled due to ambiguity surrounding the depth of the cuts and anticipated tariff hikes on steel. Advocates express concern that billions of dollars in announced investments and tens of thousands of jobs may be jeopardized as the financial viability of these projects diminishes.
According to Robert Stavins, a professor of environmental economics at Harvard University, this trend could lead to lower employment opportunities, compromised grid reliability, and slower economic growth in Texas. “From an economic perspective, it’s not good for Texas,” Stavins stated.
The rollback of tax credits follows sweeping legislation enacted during former President Joe Biden’s administration, which had significantly boosted credit availability for clean energy producers and attracted billions in investments to Texas, particularly in Republican-held districts. The recently passed One Big Beautiful Bill aims to extend tax cuts from the previous administration but shortens the time frame for companies to utilize these credits. Texas’ two Republican senators and 25 House Republicans voted for early termination of these subsidies, with some expressing a desire for even deeper cuts.
In addition to the regulatory changes, uncertainties regarding inflation, tariffs, and geopolitical factors contribute to a broader economic slowdown, according to John D. Sterman, a professor at the MIT Sloan School of Management. “All that uncertainty just makes business people very uncomfortable, and that generally depresses investment everywhere,” Sterman noted.
The impact of the new law on solar and wind companies is being closely analyzed. While Texas’ favorable regulatory environment and abundant renewable resources may mitigate some effects, experts predict that growth in wind, solar, and battery energy will still be hindered. The research group Energy Innovation estimates that Texas may experience a shortfall of 54 gigawatts of solar and 23 gigawatts of wind capacity by 2035 due to these policy changes. To put this in perspective, one gigawatt can power approximately 250,000 homes during peak demand.
As renewable energy development slows, experts warn that gas plants will need to operate more frequently to meet demand, resulting in higher gas prices and subsequently escalating electricity costs for consumers. A Princeton University analysis predicts that greenhouse gas emissions will increase, with electricity bills in Texas expected to rise by 5% by 2035 as a result of the new policies.
The state has long been recognized for its oil and gas production, yet it has simultaneously emerged as a leader in clean energy. The deregulated electricity market fosters competition among energy producers to provide affordable power, while the streamlined permitting process has facilitated the growth of wind, solar, and battery projects. The number of utility-scale solar farms in Texas surged from approximately 5 gigawatts in 2020 to an astounding 27.5 gigawatts by the end of 2024, according to a study from Columbia Business School.
The Inflation Reduction Act (IRA), passed in 2022, was a landmark climate law that expanded tax credits for clean energy initiatives, aiming to bolster energy generation, create new jobs, and reduce energy costs. Since the IRA’s passage, over $62 billion has been invested in clean energy projects across Texas, as reported by the Clean Investment Monitor.
Despite the benefits seen from renewable growth, challenges remain as many planned projects hinge on the availability of tax credits. A recent report by investment bank Jefferies highlighted a significant uptick in cancellations, noting that approximately 4 gigawatts of battery projects and 3.5 gigawatts of solar projects were scrapped in April and May, marking May 2025 as a particularly challenging month for new developments.
Mark Rostafin, co-CEO of renewable energy developer Vesper Energy, pointed out that the uncertainty surrounding tariffs and tax credits has led companies to pause projects that are not far along in the financing or construction phases. “The ambiguity locks up the market, and that’s the more problematic piece,” Rostafin explained. He emphasized that clarity regarding the new rules is essential for the industry to move forward.
The legislation phases out many subsidies that have stimulated clean energy investments, initiating a countdown for companies to commence construction on their projects. Companies can receive a 30% tax credit for investing in, building, and operating energy production facilities, with additional incentives for using domestically sourced materials. This reduction in tax credits will significantly affect project financing, increasing costs for clean energy developments.
The Congressional Budget Office estimates that the expiration of the investment tax credit and depreciation deductions will raise the cost of a utility-scale solar facility requiring $350 million in investment by $126 million in 2027 without the credits.
Critics argue that the Trump administration’s actions are inconsistent with Republican goals of achieving energy independence and promoting an “all-of-the-above” energy strategy. Jesse Jenkins, a Princeton energy systems expert, commented, “They’re standing in the way of building cheap, affordable, American energy supplies in the form of wind and solar, and they’re raising taxes on what we are going to be able to build.”
Despite these challenges, the costs for producing solar panels and batteries have declined significantly and are expected to continue decreasing. While experts acknowledge that the changes to tax credits are not favorable, many believe that solar power will remain a competitive energy source over the long term. Doug Lewin, a Texas-based energy consultant, stated, “We will still build renewables; I still think that they will be the most common form of power that’s built.” However, he cautioned that the reduced scale of development and increased costs will disproportionately affect smaller consumers.
As Texas navigates these changing dynamics in the energy landscape, the implications for consumers, businesses, and the overall economy remain significant, underscoring the need for clarity and stability in renewable energy policies.