Navigating Renewable Energy Projects in the Trump Era: Tariffs, Taxes, and Commercial Strategies

Trump’s second term is expected to potentially disrupt the Inflation Reduction Act (IRA) and impose sweeping tariffs and other import restrictions. The impacts on the supply chain and tax credits may raise procurement costs and create roadblocks for some renewable energy projects. Team Orrick discusses the most pressing questions and uncertainties surrounding the renewables sector:

• How potential changes to tariffs, other import restrictions and tax credits will impact projects.
• How and which deals may be affected and what steps you can take now to avoid roadblocks.
• What role states are expected to play to advance renewables in this environment.

MCLE Credit

• This program is available for MCLE self-study credit in California and New York. 1 hour of MCLE credit will be provided.

• For CA, print this Self-Study Sheet for your records.

• For NY, complete this Self-Study Sheet. Download the PDF file, fill in your information and write the attendance verification code spoken during the program. Once completed, please email the form to Melissa Woods and Jane Gracey

• Substantive materials related to this event are available here.

Key Takeaways

• A retroactive repeal of the IRA is unlikely, but a partial repeal and Executive Branch actions could cause disruption.

  The Trump administration will aim to further reduce the corporate income tax rate and extend the expiring Tax Cuts and Jobs Act at an estimated price tag of $4 trillion over a decade.

  Repealing the IRA would offer a potential savings of about $800 billion to offset this cost, but a full repeal is unlikely since nearly $350 billion in IRA tax benefits have gone to Republican or battleground states. Plus, skyrocketing energy demand driven by AI will require increased energy production across all verticals.

  Executive actions could impose stricter regulations on domestic content and energy communities, but current renewable energy laws are expected to persist. Vulnerable areas include DOE loans, EV credits and "direct pay" for tax-exempt entities. We believe transferability will remain intact as many lenders are committed. Grandfathering projects on start of construction is a good strategy but it’s important to follow IRS “begun construction” notices.

• The 2024 election maintained the status quo in state leadership, with blue states expected to advocate for renewable energy and red states likely defending expansion of fossil fuels.

  The election saw no change in party control among governors, though some legislative shifts occurred, such as Michigan's House flipping from blue to red and the North Carolina House losing its Republican supermajority.

  Overall, this largely status quo election means we expect to see “more of the same” when it comes to the states’ approach to energy issues except that blue and red states will flip roles when it comes to challenging the federal government. Blue states can be expected to continue advocating for renewable energy and challenging federal fossil fuel expansion efforts, while red states will defend these initiatives without necessarily opposing renewables. State attorneys general will continue to battle each other over climate change and climate change litigation centered around whether states – or only the federal government – can regulate interstate emissions.

• Expect far-reaching, erratic international trade and investment government intervention, especially regarding China.

  Trump's proposed tariffs could significantly impact global trade, with threatened import duties ranging between 20% and 60%. Legal authority for such actions is uncertain, but national security justifications could lead to restrictive policies on international sourcing and investment. No sourcing from China is safe, but we could also see an expansion of CFIUS action to investment from NATO allies and support for industry initiatives to expand special duties – for example, "antidumping" (alleged unfair pricing) and "countervailing" (alleged subsidization) duties already in place on Chinese and Southeast Asian solar modules.

• Sponsors are seeking price and contract protections in offtake arrangements in light of increased tax credit and tariff risks. Buyers, including corporate buyers, appear committed to drive renewables and storage projects despite the uncertainty.

  Corporate buyers are not shifting their long-term sustainability goals, and there are tools to protect against risk in PPAs. Although tax credits and tariffs are traditionally seller risks, developers are seeking prospective protections to address the increased risks. In the event of a partial or total repeal of the IRA or increased tariffs, developers can take a variety of approaches, from the obligation of the parties to negotiate amendments in good faith to pre-determined price protection provisions. 

• Procurement and construction timelines are largely business as usual – big ships take time to change direction.

  Some deals are accelerating procurement for batteries and solar components, but overall, the industry continues to navigate uncertainty with established risk mitigation strategies. Volume reductions in master agreements and attention to import provisions are notable trends driven by offtake agreements. While there is a slight rush to procure equipment to "begin construction," the impact is minimal due to unclear benefits and vendors’ limited short-term manufacturing capacity.

• Financing activity remains strong – going from “hot to very warm” – with a focus on asset quality and a potential shift to more conservative financing practices, sizing and risk allocation.

  Banks and corporates are expected to maintain pressure to keep transferability of tax credits. Banks have set up transfer desks and adopted hybrid structures while corporates have factored tax credit discounts and transactions into their financial planning.

  There may be more hesitancy from new entrants into the transferability market (for example, corporates who were already slow to engage) and international players may be less hot on U.S. investments.

  Sponsors should ensure their projects are as clean as possible on the development side to attract the best financing options, emphasizing the importance of ensuring project compliance with prevailing wage requirements and tax credit adders. Tariffs remain a significant risk to project economics, potentially affecting financing viability as financing parties are likely to shift tariff risks onto sponsors.

• With expectations of lower interest rates stimulating private equity and capital markets opening by the second half of 2025, expect an opportunity for strategic M&A activity especially coming into the second half of the year.

  The high-power demand from AI, data centers and tech sectors underscores the urgency for investment in new power generation capacity. However, tariffs pose significant risks to supply chains, with increased CFIUS scrutiny impacting cross border M&A. While the market has recently favored buyers, M&A markets during the first Trump administration were strong, which means 2025 could offer strategic M&A opportunities.