The Tax Bill and a New Trump Executive Order
- SWS
- Jul 9
- 6 min read
Energy Policy Perspectives Vol. 8 - July 9, 2025
Wind/Solar EO. Yesterday, President Trump issued his latest executive order (EO), Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources. Despite generating an Oval Office photo op yesterday, the EO appears to merely be an opportunity to restate the administration’s anti-renewable energy policy while requiring the Treasury Department to enforce U.S. HB 1 (the tax bill) that was ratified by President Trump on July 4th as it relates to wind and solar PTCs and ITCs, https://legiscan.com/US/bill/HB1/2025.
Potentially stiffer enforcement. U.S. HB 1 raised the bar for the implementation and enforcement of wind and solar tax provisions. However, the EO yesterday does appear to potentially allow for “stricter” Treasury interpretations of the certification provisions of the tax credits (i.e. start of construction, domestic content), potentially allowing for incremental reductions to the deployment of renewable energy infrastructure reflected in the specific language of U.S. HB1.
U.S. HB 1 is negative for electricity resource modernization/growth. While we have seen some fairly glowing reviews of the purported benefits of U.S. HB 1, and it is better than the original House bill, we cannot agree that it is constructive. The new law severely reduces the potential for new electricity resource construction at a time when load growth is accelerating in the U.S. and all sources of new supply are critical as U.S. regional electricity markets are becoming more constrained.
Renewable winter to come. The new law requires new wind and solar electricity generation projects to begin construction by July 3, 2026 (with a stricter interpretation thereof that injects new uncertainty for project developers) or be complete by year-end 2027 to be eligible for the 48E and 45Y investment and production tax credits. While the construction safe harbor provisions will help some projects be realized, there are limits on construction that will restrict new generation capacity. And while there may be some short-term acceleration in some wind and solar projects, the phase-out of ITCs and PTCs will ultimately cause a development winter similar to those experienced in previous periods of legislative ITC/PTC tax benefit pauses that will last at least for several years. Otherwise, the U.S. HB1 provisions cause a 40%-70% increase in renewable electricity generation project costs that are not complete by the 2027 deadline. For some utilities required to meet Renewable Portfolio Standards or other utility and state policy objectives, this will be a heavy blow for utility ratepayers in the 2028-2030 timeframe.
Other provisions. The U.S. HB 1 provisions create a lot of unnecessary market dislocations (free markets?) such as restrictions on project foreign equipment procurement and foreign ownership of energy infrastructure. This further restriction severely hampers what have been important elements of robust renewable infrastructure deployments in recent years. Residential clean energy credits are also being phased out, reducing that source of incremental energy. Fortunately, electricity storage projects (45X) were exempted from the tax credit phase-out and could result in some utility resource planning shifting.
Nuclear development. The new tax law does retain nuclear 45U tax credits through 2032. However, the foreign ownership restriction applies here as well, limiting new nuclear development somewhat. Overall, we would have liked to see a more aggressive new nuclear technology development and deployment support package, and 2032 is a really optimistic deadline for the use of the 45U incentives.
Expect the status quo from the oil & gas sector despite the numerous incentives and deregulation. The One Big Beautiful Bill Act (OBBB) clearly prioritizes fossil fuel production over other energy sources with several positives for E&Ps include increasing leasing under federal lands with reduced royalties, accelerated permitting and tax breaks/subsidies to incentivize increased investments from the sector. However, despite the numerous incentives for the oil and gas sector, we do not expect it to translate into production growth over the coming years. We expect the status quo from the E&Ps with maintenance mode to low single digit annual growth for the near-to-medium term. This is a function of the macro headwinds, both demand and supply, which are creating market volatility with depressed and backwardated oil prices (2026 and 2027 WTI oil strip prices are $63.41/bbl and $63.33/bbl, respectively, 7.6% and 7.7% lower than the front month of $68.62/bbl). On the demand side, there is a slowing global oil demand growth (particularly from China, which is expected to reach peak demand in 2027) with uncertainty remaining from tariffs and the global economy. On the supply side, OPEC+ continues to increase output (announced a 548.0 Mbbls/d increase for August) and President Trump’s priority remains on keeping oil prices low (sub-$60/bbl WTI). This will keep the oil companies disciplined with a focus on generating free cash flow to drive capital returns, especially with the low investor appetite (S&P energy weighting is at 3.0%, the lowest level since early 2022).
Production growth is more likely to come from the natural gas E&Ps. Longer-term, we see the potential for incremental growth from the natural gas-weighted E&Ps, as natural gas infrastructure investments have a greater chance of accelerating with growing demand visibility supporting a strong macro backdrop. Moreover, the demand for natural gas may be further accelerated due to the challenges from higher prices and fewer incentives for clean energy, making natural gas a logical fuel to meet the growing AI/power generation demand ahead. Thus, the recent sell-off in the natural gas E&Ps may provide an opportunity for the long-term investor. The initial catalysts could materialize soon, as deals to directly supply data centers or utilities are signed, signaling a pivot to growth once those projects are in- service (2027+ timeframe). All of the natural gas companies are in discussions with various potential partners, and we expect the first deal announcements by year-end – stay tuned.
Tax incentives should boost free cash flow for E&Ps. The numerous tax incentives [including intangible drilling costs (IDCs), percentage depletion allowances, bonus depreciation, etc.] should contribute to an uplift to free cash flow. While historically these types of incentives would drive increased investment from the E&P sector, we do not expect an increase in activity in the current commodity price backdrop, rather we expect the majority of the sector to harvest the incremental free cash flow and/or bump up buybacks at current valuations. Adding inventory via acquisitions will also continue to be important, particularly for the smid- cap companies, which need to boost their running room to garner investor interest. With 2Q25 results, we expect many management teams to provide some early guidance on the incentives outlined in the OBBB and potential tweaks to the outlook and overall strategy under the new tax regime.
SPR deprioritized. The OBBB deprioritizes replenishing the Strategic Petroleum Reserve (SPR), sharply cuts refill funding, removes future mandatory drawdowns and formally cancels planned reductions. In our view, this represents a major policy shift away from restoring SPR levels and maintaining emergency reserves. We view this as a modest negative for oil prices, as the absence of SPR buying removes a historical source of downside support in a weak oil price environment, introducing incremental uncertainty at the lower end of the price range.
Some Key Energy Provisions of U.S. HB1:
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