One month after the U.S. House of Representatives passed its own version of a reconciliation bill, Senate Republicans unveiled their proposal for the budget package on Monday night, revealing substantial impacts to renewable energy incentives under the Inflation Reduction Act (IRA).
The newly drafted language from the Senate Finance Committee strikes a severe blow to tax credits for solar, wind, and hydrogen energy sources, while simultaneously preserving and even slightly extending incentives for nuclear power, geothermal energy, hydropower, and long-duration energy storage. Carbon capture tax credits also survived, albeit with some modifications.
One of the sharpest cuts would occur in residential solar incentives, with Senate Republicans proposing to terminate homeowner solar tax credits within 180 days of enactment. Solar leasing companies would lose eligibility entirely, swiftly undermining a crucial segment of the residential solar market.
For commercial wind and solar projects, the timelines also face significant changes. Under the current IRA, generous tax credits run through 2032, but the GOP proposal would drastically shorten that benefit. Projects that launch construction within six months after the bill becomes law would still be eligible for full credits. However, those starting construction in 2026 would receive only 60% of the credit, and those beginning in 2027 would see that number reduced to just 20%. After that, the incentive would disappear completely.
Hydrogen-oriented businesses would face an abrupt end to their tax credits this year, aligning with the previously passed House version. The shift introduces further uncertainty for the burgeoning hydrogen sector, which has long battled inconsistent government policy.
Carbon capture initiatives experience a mixed fate under the new proposal. Republicans stripped away a key distinction from the existing 45Q tax credit program, which until now provided varying incentives depending on how captured carbon was utilized. Under the proposed bill, all carbon capture projects would receive identical treatment and equal access to federal tax incentives.
Meanwhile, technologies favored by Republican legislators, including nuclear energy, geothermal power, and hydropower, are given extended support. Notably, projects beginning construction as late as 2033 would still qualify for the full tax credits, one year beyond what the IRA currently offers. The credits would gradually reduce thereafter, declining to 75% in 2034, and 50% in 2035, before ceasing entirely in 2036.
Perhaps the most surprising detail in the Senate GOP bill is the provision supporting long-duration energy storage, a move that could indirectly bolster wind and solar by improving their viability as around-the-clock power sources.
This legislative draft underscores Republican priorities, reflecting a targeted effort to dismantle significant parts of the Biden-era renewable energy framework, especially wind and solar incentives, while maintaining support for nuclear and geothermal projects. Still, the legislation faces substantial hurdles ahead. It must first clear procedural review by the Senate parliamentarian and then gain approval in the House, which has set a July 4 deadline to finalize and pass the budget reconciliation package.
