Texans will pay higher power bills as clean energy development slows because of tax credit cuts, economists say

Sign up for The Brief, The Texas Tribune’s daily newsletter that keeps readers up to speed on the most essential Texas news.

---

Economists expect that the development of solar and wind farms nationwide will slow and electricity prices will rise in the coming decade because of significant rollbacks to tax credits that benefited those industries, in addition to other economic uncertainty.

Texas, which has built more wind power than any state and is a top contender for the most solar power, faces this projected slowdown as grid operators predict soaring electricity demand.

Energy analysts have noted that an unusually high number of solar and battery projects in the state were already canceled or paused in the months leading up to the tax credit cuts because of uncertainty over how deep the cuts would be and the specifics of tariffs that would raise the price of steel.

From battery manufacturing in Brookshire to a solar product facility in Stratford, advocates worried that billions in announced investment and tens of thousands of planned jobs might get killed as project economics change.

With less renewable development likely comes lower employment, pressure on grid reliability and slower state economic growth, said Robert Stavins, a professor of environmental economics at Harvard University.

“From an economic perspective, it’s not good for Texas,” Stavins said.

Sweeping Democratic legislation that passed under former President Joe Biden dramatically expanded credits for clean energy producers. The policy changes brought billions of dollars of investment to Texas, much of it to red districts. The goal was to lower greenhouse gas emissions and establish the U.S. as a top clean energy manufacturer and producer.

President Donald Trump signed the One Big Beautiful Bill on July 4 in an effort to extend tax cuts from his first term and lower federal spending. Among its sweeping changes, the law dramatically shortens the time frame for when solar and wind companies can use the Biden-era tax credits.

Texas’ two Republican senators and 25 House Republicans all voted to end the subsidies early — with some, like Rep. Chip Roy, R-Austin, grousing that Congress did not go far enough. Trump is now taking steps to restrict wind and solar project development further by slowing permitting timelines on federal land and tightening eligibility rules for projects trying to qualify for tax credits before they phase down.

On top of that are the unknowns around inflation, tariffs and geopolitics, which combine to create broad economic drag, said John D. Sterman, professor at the MIT Sloan School of Management.

“All that uncertainty just makes business people very uncomfortable, and that generally depresses investment everywhere,” Sterman said. “It’s not just what’s in the Big Beautiful Bill.”

Economists and energy analysts have been crunching the numbers on how bad the fallout for solar and wind companies could be from the new law. The business-friendly regulatory environment and ample windy and sunny places that fueled Texas’ clean energy boom should help keep some business coming. But experts say wind, solar and battery growth will still be hampered.

The research group Energy Innovation Policy and Technology estimated that by 2035 in Texas there will be 54 fewer gigawatts of solar developed and 23 fewer gigawatts of wind developed because of the policy changes. One gigawatt can power around 250,000 homes in Texas during high demand.

This is because, with the expiration of the federal tax credits, some clean energy projects simply won’t make financial sense to build anymore. As a result, gas plants will need to run for more hours to meet demand, which will drive gas prices higher and push the price of power higher too, experts said. A Princeton analysis predicted that because of the new policy, greenhouse gas emissions will increase, while electricity bills in Texas will rise by 5% by 2035.

“For Texas, where you're really relying on these types of new generation facilities to meet surging demand and to keep prices low, as well as increase reliability, it's going to be tough,” said Shane Londigan, a climate and energy senior policy adviser at think tank Third Way. “Those cost increases are going to be felt.”

How tax credits boosted clean energy development in Texas

Texas has long been known for producing oil and gas; it produces more than any other state. But it’s also become a clean energy magnet.

In addition to having ample good places to develop solar and wind projects, the electricity market is deregulated, meaning energy producers compete to provide cheap power. Combined with a relatively quick process to connect to the grid and a simpler permitting regime than other states, Texas set the stage for wind, solar and battery power to succeed.

Wind power began taking off here in the mid-2000s. Solar power started picking up about a decade later. The amount of utility-scale solar farms built in Texas jumped from about 5 gigawatts in 2020 to 27.5 gigawatts by the end of 2024, according to a study from Columbia Business School.

Cheaper and quicker to build than gas-fired plants, Texas’ wind and solar buildout made it the “advanced energy capital of the country,” said Matthew Boms, executive director of the Texas Advanced Energy Business Alliance.

In 2022, Democrats in Congress passed the Inflation Reduction Act, or IRA — a landmark climate law that expanded tax credits for clean energy companies and consumers alike in an effort to generate more energy, create new jobs in the sector, establish renewables manufacturing in the U.S. and bring down energy costs.

The expanded federal subsidies created all sorts of cost savings, including for manufacturing items like solar panels and electric vehicles, improving home energy efficiency and building an array of clean energy technologies.

Companies have invested over $62 billion in clean energy projects across the state since the passage of the IRA, according to the Clean Investment Monitor, a project from research organization Rhodium Group and MIT to track clean energy investments. Much of the investment has gone to Republican districts represented by members who voted against the bill, including the Houston exurbs, the Panhandle, the Permian Basin and southwest Texas.

The renewables growth brought much-needed power to the state’s electric grid as demand rose. The state grid serves the majority of Texas and, unlike grids on the eastern and western halves of the country, largely stands alone.

The Electric Reliability Council of Texas, which operates the grid, repeatedly called for residents to conserve energy amid record-breaking heat in the summer of 2023, but the new solar farms helped to meet the high demand. A report from the Federal Reserve Bank of Dallas found solar power and batteries made a difference in keeping the grid running in summer 2024 too, without any conservation calls.

ERCOT predicts the grid will need to be able to provide vastly more power on the highest-demand summer days to come — 145,000 megawatts of power in 2031 compared to 86,000 megawatts in 2025. Economic and population growth in the state are driving that, along with new large electricity users such as data centers.

“Broadly speaking, a more diverse generation portfolio is a more resilient grid,” said Dan O’Brien, an Energy Innovation senior analyst.

Many more clean energy projects were expected to come to Texas with the tax credits in place: Companies have announced over $128 billion in planned investment for over 650 clean energy facilities in Texas, according to the Clean Investment Monitor. The announced facilities are expected to create close to 132,000 jobs.

But many of these projects were financed with the expectation that the subsidies would be available — and are at risk of not moving forward now that the credits are being phased out.

A June report from the investment bank Jefferies found a “large increase in Texas renewables development cancellations” in April and May. They found that roughly 4 gigawatts of battery projects and 3.5 gigawatts of solar projects were canceled in those two months and called May “the worst month in years for new development.”

Mark Rostafin, co-CEO of Irving-based renewable energy developer Vesper Energy, said the uncertainty around the tariffs and tax credits caused companies to tap the brakes on projects that weren’t already far along in the financing or construction process. He said his company was looking at what to do with its portfolio and waiting for more clarity while the bill was debated.

“The ambiguity locks up the market and that’s the more problematic piece,” Rostafin said. “Once we know the rules, the industry will go. We’ll go do the best we can with what we have in front of us.”

Texas could lose billions in investment and thousands of jobs

The One Big, Beautiful Bill phases out many of the subsidies that have supercharged wind and solar and other clean energy investment, starting a countdown for companies to get shovels in the ground on their projects.

Companies can receive tax credits of 30% for investing in, building and operating various energy production facilities, with bonus incentives to use domestically sourced materials. Democrats intentionally created a 10-year time horizon for the expanded credits to provide businesses with the certainty needed to pursue new projects, a provision that made the policy more popular and more expensive than expected.

Under the new law, clean energy investment and production tax credits for wind and solar projects will end in 2027. Projects need to be under construction by July 4, 2026 to be eligible for subsidies or be placed in service by the end of 2027.

But a new memo from the Interior Department, first reported by Politico, revealed that the Trump administration will seek to throw roadblocks up for new projects hoping to qualify for the tax credits in time by creating a federal permitting bottleneck requiring a number of approvals that the industry has described as inordinate.

“The final language that passed, while still horrific especially going forward, gave a fighting chance to a decent portion of the projects that have already been announced,” said Jesse Lee, senior adviser at political advocacy group Climate Power and former Biden White House senior official, adding, “There remains a question of how exactly they will implement this.”

Tax credits for consumers — like one that allows homeowners to deduct 30% of the cost of rooftop solar installation or equipment — will disappear at the end of the year. Manufacturing subsidies were preserved but with tighter qualification rules around ensuring content is sourced from non-Chinese markets.

Taken together, the costs associated with manufacturing parts and developing solar and wind energy will rise for companies as soon as next year. Industry experts predict a short-term rush to begin construction on planned projects and start up new ones.

In that regard, Texas is at an advantage.

“Texas is actually one of the few places where you could start a project in the middle of 2026 and actually maybe place it in service by the end of 2027,” said Rich Powell, the CEO of the Clean Energy Buyers’ Association.

Powell, who said CEBA members buy a third of their power from Texas, said his modeling indicates that the majority of planned solar and battery projects will be deployed, even without the credits. The development of new wind farms becomes more difficult without the credits, according to Powell.

Without the credit, project costs start to balloon rapidly. The nonpartisan Congressional Budget Office estimated that between the end of the investment tax credit and depreciation deductions, a utility-scale solar facility that requires $350 million in investment will cost $126 million more in 2027, without the credit, than it does today.

The Trump administration’s actions look completely at odds with professed Republican goals of American energy dominance and an “all-of-the-above” energy approach, said Jesse Jenkins, a Princeton energy systems expert.

“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,” Jenkins said. “So in a period of time when electricity demand is growing rapidly, especially in Texas … If we can’t add supply fast enough to keep up with demand, that’s a recipe for an affordability crisis, for prices to spike.”

Still, the costs for producing solar panels and batteries have fallen drastically and continue to get cheaper, said Gernot Wagner, a climate economist at Columbia Business School. And while he didn’t think the tax credit changes were good, it’s possible that solar power will continue to be a cheaper energy source than its competitors over the long term, even with a new set of financial rules.

“We will still build renewables; I still think that they will be the most common form of power that’s built,” said Doug Lewin, an Texas-based consultant and energy expert. “There’s going to be less of it. It’s going to be what is built is more expensive and that’s going to hurt the smallest consumers the most.”

Disclosure: Politico has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

---

The lineup for The Texas Tribune Festival continues to grow! Be there when all-star leaders, innovators and newsmakers take the stage in downtown Austin, Nov. 13–15. The newest additions include comedian, actor and writer John Mulaney; Dallas mayor Eric Johnson; U.S. Sen. Amy Klobuchar, D-Minnesota; New York Media Editor-at-Large Kara Swisher; and U.S. Rep. Veronica Escobar, D-El Paso. Get your tickets today!

TribFest 2025 is presented by JPMorganChase.