The Senate's new budget proposal is a big improvement—but a few changes could make it much better
The Senate's new budget proposal terminates solar/wind subsidies with a 2027 "placed in service" deadline, but removes the House's "in construction" requirement and leaves in costly loopholes.
Most people don’t recognize the House BBB was overly generous in subsidizing new solar/wind projects
I have made the case to dozens of legislators that the House BBB is overly generous in overly generous in subsidizing new solar/wind projects. And certainly that Senate Finance's proposal is a crazy giveaway to grid-destroying grifters.
Here's the explanation I've shared with them.
The House “termination” of solar/wind subsidies was not a payment termination—which would mean: no more subsidy payments for any projects, completed or new, after a certain date. (I personally prefer this kind of termination, because it truly takes subsidies off the books instead of leaving their payment streams lingering, e.g., 10-year PTC payments for wind farms or 12-year payments for carbon capture. And it truly discourages businesses from subsidy-seeking behavior in the future.)
The House “termination” of solar/wind subsidies was an eligibility termination, meaning that projects that weren’t in “construction” by a certain date (60 days after enactment) and in “service” by a certain date (12/31/28) were ineligible for subsidies.
It is not well known (even by legislators) that “construction” is an extremely easy threshold to meet. It just requires investing 5% of a project’s expected cost, and these investments can be in tradable commodities such as solar panels.
The House framework generously protected subsidies for all existing and near-complete projects, which would already be in “construction” and would have 3.5 years to be “placed in service.”
For the purposes of stopping subsidies for new subsidized solar/wind projects, which are an existential threat to the grid, the House terms were overly permissive. Allowing 60 days after enactment to commence “construction”—which can be done near-instantaneously—and then 3.5 years to place in service would guarantee a deluge of new subsidized solar/wind projects. But at least that deluge would taper off as we reached 2026 and 2027, creating a vital "subsidy drought" that would cripple the subsidy lobby.
Here is what happens to different kinds of projects under the House bill.
Existing projects: Fully subsidized.
Near-complete projects: Fully subsidized.
New 2025 projects with shorter completion cycles: Fully subsidized.
New projects with longer completion cycles and/or projects that would be initiated after 2026: Not subsidized. Of those projects, projects that can compete on a free market will still come into being. Only projects that can’t compete on a free market will not come into being.
See how generous the House was to subsidized solar/wind?
The Senate's new budget proposal goes a long way towards improving on the House bill—but it could be significantly better
Yesterday the Senate Budget Committee released a new proposal, which moves the "placed in service" termination deadline for new solar/wind subsidies from the end of 2028 to the end of 2027.1
This is is a definite achievement—because it ensures that subsidies expire with more than a year remaining of the Trump administration, making it even less likely that they will be renewed.
Note that this proposal still generously protects subsidies for all existing and near-complete projects, which would already be in “construction” and would have 2.5 years to be “placed in service.”
This goes a long way to improve upon the House BBB, however it is worse in certain ways:
No “commence construction after 60 days” requirement that the House had in addition to “placed in service," which allows many smaller projects to be initiated.
More subsidies for other technologies, e.g., carbon capture and battery storage.
Credit transferability is allowed again, after having been repealed in the House bill.
Special subsidies for large solar/wind projects on federal lands.
How to strengthen the Senate IRA cuts so they are truly stronger
Here are changes that would strengthen the Senate IRA cuts so they are truly stronger.
1: For all solar/wind projects, add a firm “begin construction” requirement of the date of the bill’s enactment.
This will prevent a deluge of new smaller subsidized solar/wind projects. While protecting all complete and near-complete projects.
2: For ITC battery storage projects, establish a firm “placed in service” requirement of December 31, 2027 and a firm “begin construction” requirement of the date of the bill’s enactment.
This will prevent residential lease companies from collecting the ITC into the 2030s by ascribing 80+% of the cost of residential solar installations to storage.
3: Close the most egregious and costly loopholes for solar, wind, and battery projects.
This will save hundreds of billions of dollars and prevent abuse of the remaining subsidies by corrupt companies.
Cap the subsidy rate of 48E ITC to its pre-IRA level of 10% of project cost, not “fair market value” or any other inflated number, terminating exorbitant bonus subsidies.
Cease offering the PTC on day of enactment, given that the PTC distorts electricity markets and creates a 10-year subsidy stream that often amounts to 60-70% of project value.
Establish market-based per-watt cost caps for solar and wind subsidies (ITC and 25D) to avoid over-subsidizing: $3.00 in 2026 and $2.25 in 2027 for residential solar (purchases and leases), $1.00 in 2026-2027 for industrial solar, and $1.40 in 2026-2027 for wind.
Cut exorbitant 45X subsidies by 25% (from its current inflated 2022 level) and reduce it by 10% a year.
These changes:
will save hundreds of billions of additional dollars short-term and trillions long-term
are essential to restore the reliability of our grid and to lower electricity prices
will still, very generously, protect subsidies for completed and near-complete projects.
Additionally, for purposes of fairness the 25D residential tax credit for solar purchasers should have the same end-of-2027 termination as the other solar subsidies. Right now it has a 2025 termination, which makes no sense except due to its having a smaller/weaker lobby.
Michelle Hung contributed to this piece.
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