2025 has begun with uncertainty, as the clean energy sector waits to see how the upcoming Trump administration approaches the energy transition.
Donald Trump has promised to pull back unspent money from the Inflation Reduction Act, and GOP lawmakers have said they plan to scrap valuable tax credit provisions — and even repeal the law altogether. But the political feasibility of those plans remains a question mark.
One thing that is likely, though, is that 2025 will see a bit of a slowdown in terms of renewable deals. That’s according to Conor McKenna, partner and senior managing director at CRC-IB, where he specializes in renewables.
“Until people get an idea of how people are going to actually act in Congress, and what’s going to happen once [they] are sitting in their seats, there will be slowdowns,” he told Latitude Media. Investors will want to process what’s happening and think through their strategies, he added, so the majority of 2025 will be characterized by “consternation and some challenges… as to what might possibly happen on the policy side.”
The IRA injected a massive amount of capital into the energy transition. An August 2024 report by the Rhodium Group estimates that clean energy and transportation technology investments totaled $89 billion post-IRA, “more than quadruple the $22 billion invested in the two years prior to the IRA’s enactment.” It’s hard, if not impossible, for investors to quantify what the effect of repealing such a consequential law would be for the industry.
That said, McKenna is basing his own predictions of how the market will evolve on several reliable factors.
For one, policy and regulation changes are a constant in the renewable energy market — and they inevitably take months to reverberate through the market.
“Policy either enables greater growth or it can potentially inhibit it, but that impact is typically felt about 18 months after any policy change is enacted,” he said.
And if a policy change makes a project harder or more expensive, “safe harbor” provisions often guarantee that projects started before the change takes effect are subject to the previous policy regime. As a result, it can take up to five years for the shift to fully reverberate through the market.
“There’s not a hard pivot,” he said. “It’s not like all of a sudden everything stops and the machine shuts down. People take time to adjust.”
And policy is just one piece of the renewable energy market puzzle, which McKenna describes as “an inchworm,” contracting and expanding. Another is the cost of capital, which has been increasing ever since 2022 after staying relatively cheap for over a decade.
“But the head [of the inchworm] isn’t policy or cost of capital,” he clarified.“The head is electrons. So the question is: do people want to pay more for electrons in the future?”
The answer to that question, as it’s become apparent with the rise of power-hungry artificial intelligence over the past year, is likely yes. Electricity demand in the U.S. is skyrocketing, with some modeling predicting it could increase by 57% or more by 2050. The demand is fueled in part by the needs of AI, a field where “power availability has become the name of the game,” as Brent Morgan, Meta’s principal for energy strategy, told Latitude Media in an interview late last year.
According to a December 2024 report by KPMG, more than half of hyperscalers and data center developers would be willing to pay up to 50% more for electricity in order to expand their current capacity.
“We’re starting to see… people willing to pay more for electrons for renewables because they’re still cheaper alternatives, as long as you can give them a contract they like,” McKenna said. For an offtaker today, a contract ensuring that they’d be paying the same price for electrons for 20 years is very attractive; the assumption is that electricity prices will continue to increase as power demand from electrification, on-shoring, and data centers does too.
“That has an impact,” McKenna said. “People are then more optimistic about the future of given projects and then, by extension, the industry as a whole.”
