Senate Reconciliation Bill Draft Preserves Energy Storage ITC While Cutting Solar, Wind, and EV Incentives

Senate Reconciliation Bill Draft Preserves Energy Storage ITC While Reducing Solar PV, Wind, and EV Incentives
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In a recent development, US tax credits for energy storage projects may remain intact, even as incentives for solar photovoltaic (PV), wind, and electric vehicles (EVs) face reductions. Senator Mike Crapo, the chairman of the US Senate Finance Committee, unveiled a draft of the budget reconciliation bill on June 16, 2025, which outlines the committee’s jurisdiction over these matters.

Senator Crapo stated that the legislation aims to achieve significant savings by cutting back on Green New Deal spending while still providing support for the most vulnerable populations. The bill reached the Senate after narrowly passing the House of Representatives by a single vote in late May. The House version proposed an immediate end to tax credits for EVs and residential clean energy, along with drastically shortened timelines for the expiration of tax credits for solar PV, wind, and energy storage.

Currently, the committee’s proposal indicates that investment tax credits (ITCs) for solar PV and wind will begin phasing out in 2026. Projects that commence construction during that calendar year will qualify for only 60% of the credit’s value. From 2027 onward, they will receive just 20%, with no credits available the following year. The same timeline applies to the clean electricity production tax credits (PTCs) for solar and wind.

On a more positive note, the draft bill maintains the original phaseout timeline for other qualifying facilities, such as geothermal, nuclear, hydroelectric, and energy storage, which will continue until 2032. These facilities will receive 100% of the credit in 2033, followed by 75% in 2034, 50% in 2035, and a complete phaseout in 2036. It is also noteworthy that the retention of investment tax credits includes provisions for transferability.

However, the proposal restricts access to credits for projects receiving material assistance from prohibited foreign entities (PFEs) or foreign entities of concern (FEOCs). Any projects that begin construction after December 31, 2025, will be ineligible for credits. This restriction notably impacts China, a major importer of energy storage materials, components, and equipment to the US.

While advanced manufacturing credits are expected to remain, the same restrictions on material assistance could hinder investments in domestic production. Conversely, the new bill proposes the elimination of EV tax rebates, residential clean energy credits, and energy efficiency credits for both residential and commercial buildings.

The Senate may consider passing the bill as early as July 4, although many anticipate a more realistic timeline of late September or early October. As the bill is debated in the Senate, reactions from the clean energy industry, scientists, and environmental advocates have been overwhelmingly negative due to the abrupt reduction in support for renewable energy and storage. However, there is still hope that Republican Senators may amend the proposal during discussions.

In a recent interview, Isshu Kikuma, an energy storage analyst at BloombergNEF, warned that a repeal of incentives established by the Inflation Reduction Act (IRA) could lead to a significant decline in energy storage, solar, and wind installations in the US. While some industry insiders cautiously welcomed the retention of investment tax credits for eligible projects until 2032, the overall sentiment among various industry groups is one of deep concern.

Abigail Ross Hopper, President and CEO of the US Solar Energy Industries Association (SEIA), stated that while the finance committee’s bill includes “modest improvements,” it ultimately fails to protect what she describes as “one of the greatest economic success stories in American history.” She expressed that the bill would make it increasingly difficult for US manufacturers and small businesses to operate, potentially leading to higher electric bills in the coming years.

Jason Grumet, CEO of the American Clean Power Association (ACP), cautioned that the Senate bill could not only increase electricity costs but also jeopardize hundreds of thousands of jobs across the country. He noted that while it removed some detrimental provisions from the House legislation, the abrupt changes to clean energy tax credits would unfairly penalize companies making good faith investments under existing law.

Ray Long, President and CEO of the American Council on Renewable Energy (ACORE), criticized the bill as a “premature rollback of solar and wind tax credits,” which could hinder America’s energy independence and jeopardize billions in private investments that support communities nationwide.

All three association leaders emphasized that the constraints on the clean energy industry could stifle US economic growth and diminish international competitiveness. Hopper remarked, “If this bill becomes law, Americans will face soaring electric bills, job losses, factory closures, community blackouts, and a forfeiture of the AI race to China.” Similarly, Grumet warned that advancements in AI and technology innovation might shift overseas due to the lack of reasonable timelines for tax adjustments.

Long concluded with a call to action, urging lawmakers to finalize a bill that embraces all energy technologies and adheres to existing pro-growth policies essential for bolstering American competitiveness.