The Senate Just Put Clean Energy for AI in the Crosshairs
After more than a day of continuous debate, the US Senate passed its version of the budget megabill Tuesday afternoon—with potentially disastrous implications for the future of renewable energy in the country. The bill, a sweeping legislative package, contains provisions that directly target the financial incentives that have fueled the recent growth in wind and solar power, raising concerns among energy experts, environmentalists, and even some industry leaders.
Among a barrage of bad news for climate initiatives, including a new tax credit for coal and the sunsetting of electric vehicle tax credits, the bill forces an aggressive cutoff for tax credits for wind and solar. Specifically, the bill ends credits for projects placed in service—a term meaning, essentially, that a project is ready to provide power to the grid—after 2027. This abrupt deadline puts hundreds of planned projects around the country in jeopardy, disrupting investment pipelines and potentially stalling the transition to cleaner energy sources.
The Production Tax Credit (PTC) for wind and the Investment Tax Credit (ITC) for solar have been instrumental in making renewable energy projects economically viable in the United States. These credits, significantly enhanced and extended under the Inflation Reduction Act (IRA), have driven down the cost of clean energy, stimulated domestic manufacturing, and created jobs. The IRA's structure provided long-term certainty, allowing developers to plan projects years in advance and secure financing. The Senate bill's decision to sunset these credits prematurely dismantles this framework, injecting significant uncertainty back into the market.
“This is a bill to punish renewables,” says Costa Samaras, a professor of civil and environmental engineering at Carnegie Mellon University. His assessment highlights the punitive nature of the legislation, which seems designed to hinder, rather than support, the growth of clean energy. “There is a real need to add clean energy supply to the grid—electrifying our cars, electrifying our homes, electrifying our buildings, electrifying our factories, and the demands from AI are all going to require new clean energy. What this bill does is make it harder and more expensive.”
The need for new energy supply is not theoretical; it is driven by fundamental shifts in the economy and technology. The electrification of transportation and buildings is increasing demand on the grid. Simultaneously, the explosive growth of artificial intelligence and the data centers required to power it are creating unprecedented new loads. These facilities require massive amounts of electricity, and without a corresponding increase in clean energy generation, this demand will likely be met by fossil fuels, undermining climate goals and potentially straining grid infrastructure.
A Tumultuous Legislative Process
Incredibly, the original version of the bill presented Monday evening was even worse news for renewables. That text contained a new tax on wind and solar which would have taxed businesses that source material from certain foreign countries, including China—a charge that would have, in essence, kneecapped both industries. This proposed excise tax would have dramatically increased the cost of components, many of which are currently sourced internationally, making new projects prohibitively expensive. The inclusion of such a measure, seemingly out of nowhere, caused widespread alarm.
The new text, passed by the Senate, removed this excise tax, a change that offered a small reprieve but did not alter the fundamental decision to end the tax credits early. The new text also gives a little bit of leeway to projects that start construction within the next year, allowing them to keep tax credits even if they are not placed in service by the 2027 deadline. While this provides a narrow window for some projects, it does little to alleviate the long-term uncertainty created by the overall sunsetting of the credits.
President Donald Trump, who has a long-held animus for windmills, campaigned on ending the Inflation Reduction Act, and the original House bill made good on that promise. But the more extreme last-minute additions made over the weekend in the Senate text alarmed energy analysts, environmentalists, labor unions, Silicon Valley technocrats, and even some Senate Republicans. The surprise nature of the excise tax, in particular, highlighted the opaque process by which these provisions were introduced.
As NBC reported Monday, several GOP Senators said they had no idea who added in the provision. This suggests that the measure may have been inserted without broad consultation, reflecting the intense lobbying and political maneuvering surrounding the bill.
The debate also saw unusual alliances and disagreements. Alex Epstein, an energy “philosopher” who has pushed a narrative around fossil fuels being essential for “human flourishing” and who has been an influential voice for Republicans in crafting the end of the IRA tax credits, claimed on X this weekend that he did not support the excise tax, indicating that even some proponents of fossil fuels found the proposed tax on renewables excessive or counterproductive.
Elon Musk, whose businesses have benefited from a variety of climate and clean energy-related tax credits, posted a barrage of tweets Sunday and Monday disparaging the renewable energy provisions of the bill. “The latest Senate draft bill will destroy millions of jobs in America and cause immense strategic harm to our country!” he wrote. “Utterly insane and destructive. It gives handouts to industries of the past while severely damaging industries of the future.” Musk's strong reaction underscores the perception among some industry leaders that the bill actively harms forward-looking sectors like clean energy and technology.
According to Politico, Trump reportedly pushed Senate leadership last week to craft a text that was more aggressive in phasing out tax credits for renewables than the version of the bill passed in the House. “I HATE “GREEN TAX CREDITS” IN THE GREAT, BIG, BEAUTIFUL BILL,” Trump posted on TruthSocial in late June, launching into a paragraph-long, error-ridden rant on renewable energy. This direct involvement from the former president highlights the political motivation behind the attack on renewable energy incentives.
Investment Chills and Project Uncertainty
Even without the industry-ending excise tax, experts still say that the forced retirement of the tax credits blows up valuable investment in projects already in the pipeline. The clean energy sector relies heavily on the predictability and value provided by tax credits to attract private investment and secure financing for large-scale projects. Removing these credits prematurely disrupts financial models and makes many planned projects economically unviable.
Since the beginning of the year, the clean energy industry has felt the pressure of looming IRA rollbacks. According to an analysis from energy NGO E2, around $15.5 billion in investment in new clean energy projects and factories has been lost since the start of the year. This includes more than $9 billion in Republican congressional districts, illustrating that the negative economic consequences of undermining clean energy are not confined to specific political areas but impact potential growth and job creation nationwide.
The lost investment represents not just cancelled projects, but also missed opportunities for job creation in manufacturing, construction, and maintenance sectors related to wind and solar energy. The certainty provided by the IRA had begun to spur domestic supply chains for clean energy components, a trend that is now at risk. Companies that were planning to build factories or expand operations based on the expected longevity of the tax credits may now reconsider or halt those plans.
The Irony: AI's Insatiable Hunger Meets Renewable Roadblocks
The intense hostility for solar and wind coming from the Trump administration may seem, to a logical person, to be at odds with its goal of “energy dominance.” Energy dominance, typically defined as maximizing domestic energy production across all sources, would logically include fostering the growth of renewables, which are increasingly cost-competitive and domestically sourced. However, the administration's focus appears to be primarily on fossil fuels, viewing renewables as a threat rather than a complementary or essential part of the energy mix.
Energy experts say that renewables—particularly when paired with batteries—are helping to bolster the US grid as energy needs soar. The grid faces increasing stress from rising temperatures (driving air conditioning demand) and the rapid proliferation of energy-intensive technologies like AI and data centers. These new demands require significant additions to generation capacity, and renewables, with their declining costs and rapid deployment potential, are well-suited to meet this need.
Texas, for instance, added more solar and battery storage than any other type of energy to its grid last year. As of this spring, wind and solar combined made up 42 percent of Texas’s installed generation capacity, more than any other state in the US. This significant penetration of renewables, particularly solar and storage, has played a crucial role in managing peak demand.
All that new solar and storage has, in turn, helped the grid stay stable during peak use, lowering the risk of blackouts during the first heatwaves of the summer—even as Texas faces never-before-seen summer demand this year, thanks to hot temperatures and the addition of energy-thirsty data centers. This real-world example from a state often associated with fossil fuel production demonstrates the practical benefits of integrating renewables and storage for grid reliability, especially under extreme conditions.
Yet in an op-ed published in the New York Post last week, Energy Secretary Chris Wright said that wind and solar contribute to a “less stable grid.” This statement stands in stark contrast to the operational data and expert analysis from grid operators and energy analysts, highlighting a disconnect between the administration's rhetoric and the realities of modern grid management.
Doug Lewin, an energy analyst based in Austin, points out that solar and batteries are particularly well-positioned to help out with grid demand during heatwaves, when the sun is shining—and people turn on their air conditioners. Solar power generation typically peaks during the hottest parts of the day, aligning perfectly with the surge in demand from air conditioning. Battery storage allows excess solar power generated during the day to be discharged in the evening as solar production declines but demand remains high, further enhancing grid stability during critical periods.
“We’re just in this situation where we are going to need massive amounts of power to deal with the heat,” he says. “We’ve gotta have air conditioning to keep people healthy and safe during these hellacious summers, which are getting worse. That’s just an objective matter.” The increasing frequency and intensity of heatwaves due to climate change make reliable, abundant energy supply not just an economic issue, but a public health and safety imperative.
It’s particularly ironic to see these kinds of pushbacks as the Trump administration goes all in on artificial intelligence, which, by some projections, could comprise nearly 12 percent of US power demand by the end of the decade. This projection from McKinsey highlights the enormous energy footprint of AI. Training large language models and running complex AI inferences requires vast amounts of computational power, which translates directly into massive electricity consumption by data centers. These facilities are already major power users, and their demand is growing exponentially.
Meeting this surging demand requires significant new generation capacity. However, traditional sources face challenges. Right now, a global backlog in gas turbines is spelling trouble for those looking to scale up fast. Turbine producers like GE Vernova say they’ve already filled orders for the next few years, and project it may take several years for new customers to get their hands on a completed turbine. This supply chain constraint means that relying solely on natural gas to meet the rapid increase in demand from AI and other sources is not a feasible short-term solution.
In April, the CEO of renewable and utility giant NextEra Energy told shareholders that he expects renewables to act as a “bridge,” helping to bolster the grid and buy time until bigger gas projects can come online. This perspective from a major energy company underscores the practical role renewables are playing in meeting current and near-term demand, filling the gap left by slower-to-deploy traditional infrastructure.
The contradiction is stark: a push for technological advancement (AI) that requires massive energy, coupled with policies that hinder the most readily available and rapidly deployable sources of new clean energy (wind and solar). This approach risks creating an energy bottleneck that could slow the very AI development the administration seeks to promote, or force reliance on dirtier, less reliable, or less readily available power sources.
Beyond Washington: Local Pushback and Shifting Alliances
But even with the promise of AI using up every spare electron on the grid, the cultural backlash to renewables is as strong as ever—and it isn’t isolated to the White House. Despite Texas’s reliance on renewables, the state legislature battled over several bills this past session that would have seriously kneecapped solar and wind development in the state. These legislative efforts, often driven by concerns about land use, aesthetics, or perceived reliability issues, reflect a broader political and cultural resistance to renewable energy infrastructure.
Oklahoma, which relies on wind energy for a third of its energy needs, faces a growing movement to ban renewables altogether. These movements, often fueled by misinformation and local opposition, pose significant hurdles to deploying the clean energy capacity needed for the future.
Across the country, local governments, responding to grassroots movements, are pushing back against wind and solar projects on their land. (It’s important to note that many of these movements often include Democrats.) This local opposition, sometimes referred to as NIMBY (Not In My Backyard) syndrome, can delay or halt projects even when they have state or federal support, creating a complex patchwork of regulations and public sentiment that developers must navigate.
Lewin, who wrote about Texas’s legislative drama in detail this year in his newsletter, says it’s too simplistic to ascribe the hostility towards renewables as simply being funded by Big Oil. While fossil fuel interests certainly play a role in lobbying against renewables, the opposition is multifaceted and includes genuine local concerns, political ideology, and even misinformation amplified through social media.
Interestingly, the legislative battles sometimes reveal surprising alliances. According to Politico, Alaska Senator Lisa Murkowski, who has received hundreds of thousands of dollars in campaign donations from oil and gas interests over the course of her career, was an instrumental figure in changing the final Senate language to remove the excise tax. This suggests that pragmatic concerns about economic impact or supply chains can sometimes override ideological opposition, or that different factions within the fossil fuel industry have varying strategies regarding renewables.
In Texas, the oil and gas lobby united with renewables to defeat a bill that would have made energy prices higher by increasing costs for wind and solar. This alliance occurred because the proposed bill would have negatively impacted grid reliability and potentially increased costs for all energy consumers, including industrial users who are major customers of both fossil fuels and electricity. This highlights that economic realities and grid operational needs can sometimes force cooperation between seemingly opposing interests.
“It feels like you’ve got a large number of really powerful folks who have just decided, or been convinced—and then had that belief reinforced by algorithms over and over—that somehow, wind and solar are the root of all evil and are causing every problem,” Lewin says. “It's bizarre. It's really hard to kind of understand this animus for technologies that have had a huge benefit.”
This sentiment captures the perplexing nature of the current political climate surrounding renewables. Despite clear evidence of their benefits in terms of cost reduction, grid support, and emissions reduction, they remain a target of intense political opposition. This opposition, amplified by partisan rhetoric and potentially misinformation, creates significant headwinds for the energy transition.
The Path Forward: Navigating Policy Headwinds
The Senate bill, by accelerating the sunset of clean energy tax credits, creates substantial uncertainty for the renewable energy industry. Developers face a compressed timeline to get projects placed in service by the end of 2027, a challenge given the typical multi-year development cycle for large-scale wind and solar farms. This could lead to a rush to complete projects already underway, potentially straining supply chains, and a significant slowdown or halt in the planning of new projects beyond the immediate horizon.
The economic impact extends beyond developers to manufacturers, component suppliers, and construction companies. The loss of predictable tax credits makes it harder to justify investments in domestic manufacturing facilities for solar panels, wind turbine components, and battery storage systems. This undermines efforts to build a robust US clean energy supply chain, potentially leaving the country reliant on foreign imports and missing out on associated job creation.
Furthermore, the increased cost of clean energy projects resulting from the loss of tax credits will likely translate into higher electricity prices for consumers and businesses. This contradicts the stated goal of lowering energy costs and could make it more expensive for industries, including the rapidly expanding AI sector, to secure the power they need to grow.
The timing of this policy shift is particularly problematic given the surging demand from AI and data centers. These facilities are not just large energy consumers; they require reliable, clean power to meet corporate sustainability goals and operate efficiently. Tech companies are increasingly looking to power their data centers with 100% renewable energy through Power Purchase Agreements (PPAs) with new wind and solar projects. By making these projects harder and more expensive to build, the Senate bill directly hinders the ability of the tech sector to meet its clean energy commitments and secure the power needed for future growth.
The bill also sends a negative signal to international investors and partners about the stability of US clean energy policy. Predictable policy frameworks, like the long-term tax credits in the IRA, are crucial for attracting the large-scale capital required for energy infrastructure projects. Abrupt changes undermine confidence and can divert investment to countries with more stable and supportive policies.
While the removal of the excise tax was a positive development, the core issue of the accelerated sunset of tax credits remains. The clean energy industry and its allies will likely continue to advocate for policy stability and support, emphasizing the economic benefits, job creation potential, and critical role of renewables in meeting future energy demand, including that from emerging technologies like AI.
The debate over the budget bill highlights the complex interplay of politics, economics, and technology in shaping energy policy. The animus towards renewables, while seemingly irrational in the face of growing energy needs and climate challenges, is deeply rooted in political ideology and amplified by various interests. Navigating this landscape will be crucial for ensuring that the US grid can meet the demands of the 21st century economy, including the energy-hungry future of artificial intelligence, while also transitioning to cleaner sources.
The coming years will reveal the full impact of this legislative change on the pace of clean energy deployment and the ability of the grid to adapt to new demands. The stakes are high, not just for the environment, but for economic competitiveness and technological advancement.
The path forward requires a clear-eyed assessment of energy needs, a commitment to stable and supportive policies for all reliable energy sources (including renewables and storage), and a willingness to counter misinformation about grid reliability and the costs of different energy technologies. Without these elements, the US risks falling behind in the global race for clean energy leadership and failing to power the innovations that are expected to drive future prosperity, such as artificial intelligence.