By Gavin Maguire
If your goal were to raise electricity prices, weaken power supply reliability, and make it harder for the United States to meet a looming surge in electricity demand, you could hardly choose a more effective strategy than cutting support for the country’s fastest-growing sources of new power generation.
Yet that is exactly what Washington has done.
Legislation signed by U.S. President Trump, which went into effect on Saturday, accelerates the phase-out of federal tax credits for wind and solar projects, marking a sharp reversal from the incentives created under the Inflation Reduction Act.
Supporters argue the move will reduce market distortions and force renewable energy developers to compete on their own merits.
But whatever the ideological appeal, the practical effect is likely to be higher power prices and a more strained electricity system at precisely the moment the United States needs the opposite.
POWER STRUGGLE
The fundamental challenge facing American electricity markets today is not excessive generation. It is insufficient generation.
After decades of relatively flat growth, electricity demand is rising rapidly as utilities scramble to serve data centers, artificial intelligence infrastructure, new manufacturing plants and broader electrification trends.
Energy investors, grid operators and utilities are all asking the same question: How can America build enough new capacity quickly enough to avoid supply shortages?
The answer almost certainly requires more generation of every type, not less.
That reality makes the decision to pull support from wind and solar especially puzzling.
Solar alone has become the largest source of new power generation added to the U.S. grid since 2020, while wind remains one of the biggest contributors of new utility-scale capacity.
Even after years of deployment, developers continue to plan hundreds of gigawatts of future projects because the technologies are relatively cheap, mature and fast to construct.
Analysts expect solar to remain a dominant source of new capacity additions throughout the remainder of the decade, even under less favorable policy conditions.
MYOPIC OPPOSITION
Critics often respond that if wind and solar are truly competitive, they should no longer require subsidies. That argument has political appeal. But electricity markets do not operate in a textbook world.
Every major generating technology has benefitted from government support at various points, whether through tax incentives, research funding, loan guarantees, favorable leasing arrangements or regulatory structures.
The oil and gas sector alone has received significant subsidies and tax breaks from the U.S. government for more than a century, and the coal sector has been consistently receiving various forms of federal aid for even longer.
So the question is not whether subsidies are philosophically pure. The question is whether removing them now improves market outcomes.
The answer is probably no.
Electricity markets are governed by a simple economic principle. When demand rises faster than supply, prices increase. The fastest way to moderate prices is to encourage additional generation.
Policies that reduce investment in new capacity generally have the opposite effect.
Supporters of the phase-out often talk as if renewable projects simply disappear from a balance sheet. In reality, every canceled or delayed project represents power that will not be available to consumers.
Unless an equivalent amount of generation is developed elsewhere, the loss contributes to tighter markets and higher prices.
Even organizations reviewing the legislation have warned that the rollback of clean-energy credits could place significant amounts of planned generating capacity at risk and increase energy costs over time.
IF NOT RENEWABLES, THEN WHAT?
Nor is it obvious what technologies are supposed to fill the gap.
Natural gas will remain critical to the U.S. electricity system, but developers face turbine shortages, supply-chain constraints and increasingly lengthy development timelines.
New nuclear reactors offer long-term promise but require years — and often decades — to advance from planning to operation. Hydropower opportunities are limited. Geothermal remains relatively niche.
By contrast, large-scale solar farms, wind projects and battery systems can often move from development to operation far more quickly. That speed matters when electricity demand is climbing today, not 10 years from now.
The policy also sits uneasily alongside the government's broader economic ambitions.
The Trump administration wants the United States to lead the global race for artificial intelligence. It wants advanced manufacturing facilities built at home. It wants data centers, semiconductor fabrication and industrial investments to remain in the U.S. rather than migrate overseas.
All of those objectives require one thing above all else: abundant electricity.
The AI boom is effectively a giant demand shock for the power sector. Every new data center increases pressure on local grids and raises the need for additional generating capacity.
Policymakers cannot simultaneously celebrate enormous growth in power consumption while making it harder to build some of the country's most deployable sources of electricity. Those goals are fundamentally at odds.
BAD TIMING
None of this means wind and solar subsidies should exist forever.
A reasonable case can be made that mature technologies eventually should stand on their own. Markets function best when participants respond to price signals rather than government incentives.
But timing matters. Eliminating support during a period of stagnant demand would have different consequences than removing it during the largest expected growth cycle in decades.
The United States is entering the latter.
The country is not confronting a surplus of electricity. It is confronting the prospect of not having enough.
In that environment, policymakers should be looking for ways to accelerate investment in generation, transmission and storage across the board.
Instead, Washington has chosen to place new obstacles in front of two technologies that have supplied much of the country's recent growth in electricity production.
The irony is hard to miss. For years, politicians of all stripes have warned that abundant, affordable energy is essential to economic strength and national competitiveness. They were right.
Which is why making power harder to build is such a strange way to pursue it.
The opinions expressed here are those of the , a columnist for Reuters.
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