Energy transition is going through what can be described as growing pains. Here to stay, but the reality of what it is going to take to diversify energy resources will take decades. And I stress the word "diversify" as opposed to "transition." We all knew it at a gut level. However, politicians and others with concerns about climate change tried to cram it into an unreasonably short period of time — think of all the "Net Zero" lines in the sand.Capital quickly poured into energy transition in staggering amounts.The capital investment opportunities were buoyed by substantial government goodies.
The realities of the pace of transition began to show well before the administration changed. The issues that generally affect any industry going through rapid change and growth were present, including technology risk, adoption risk, operating risks, regulatory risks, competition, capital costs and returns for investors, consumer interests, and politics.The euphoria of a quick transition is over. The ability for investors to get in early and generate outsized returns in the steepest part of a growth curve is narrower than expected.This transition or diversification will be a long slog for all. Many investors are stuck — already finding it difficult to sell their assets or raise additional growth capital.Distress is increasing.
The energy transition is like the game Jenga. Too many of those supporting blocks are removed, and the structure crumbles.Well, the political block was pulled, potentially devastating the renewable power sector.
Last Thursday night, the Big Beautiful Bill passed the House of Representatives, including provisions that create significant challenges for the renewable power sector.Among the most significant changes to the initial proposal's energy provisions is the near-immediate termination of investment tax credits (ITCs) and production tax credits (PTCs), which are critical to the economic viability of renewable power.Under the new bill, projects that do not begin construction within 60 days of the bill's enactment will not benefit from ITCs and PTCs. Projects that begin construction within that 60-day window would also need to enter service by the end of 2028.This was a surprising shift from the initial proposal — which would have begun gradually phasing out eligibility for projects that come online in 2029 — with the full value of credits falling to zero only at the start of 2032.The bill would significantly affect projects that are in development, with limited opportunity for safe harboring that was anticipated under a prior draft. An estimated 110,000 MW of solar, wind, and battery storage assets expected to be placed in service between 2026 and 2028 would be abandoned because of the start of construction requirement of the bill.
With material projected growth in electricity demand, partly driven by energy-hungry artificial intelligence (AI), advocates for renewable energy are warning that grid reliability is at stake.The bill passed the House by one vote and caused immediate market turmoil.The stock of inverter producer Enphase Energy sank by 19%, America's number one home solar company, Sunrun, was down by nearly 37%, and even First Solar fell by 4% despite the bill leaving manufacturing credits largely intact. Expectations are for a more moderate approach to revisions to the Inflation Reduction Act (IRA) by the Senate. But if any variation of the House bill as it relates to these tax credits survives, then an industry already experiencing growing pains will see distress that can only be described as a wrecking ball.All with the stroke of a pen.
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