Federal Policy in 2025 and the Energy Transition: How Expected Energy Demand Growth Will Allow Renewable Energy and Battery Storage to Survive and Even Thrive Despite the One Big Beautiful Bill Energy

Tax Law Changes for Energy in 2025

The One Big Beautiful Bill changed US energy policy. Renewable energy investments were extremely volatile during much of the second quarter, with each rumor of major changes impacting renewable investments. The passage of the OBBB in July crystalized the impact on energy transition companies. On the positive side, tax credits for battery storage systems, geothermal, and nuclear were mostly kept in place. On the other hand, the OBBB ends incentives for wind and solar projects that are not in service by the end of 2027. A setback for wind and solar, yes, but not an unrecoverable one. In today’s fast-paced and ever-changing world, 2027 is still a long way out. As we approach that end date for wind and solar tax credits, the economic realities of higher prices and long lead times for natural gas and nuclear could bring about an extension of renewable and solar investment tax credits. The reality of rising demand growth is a problem; a problem that requires renewables and batteries as a major part of the solution.

Rising Demand Growth

According to most media reports, the 2025 US energy story centered around one thing: The One Big Beautiful Bill Act. The reality is quite different. For the first time in a generation, grid operators in the United States – from ERCOT to PJM to CAISO – are seeing significant demand growth. The chart depicts the expected demand growth over the next decade in just the PJM and ERCOT grids.

Over the next decade, the predicted demand growth will be over 100 GW, nearly 50% of the total current summer demand. An industry transitioning from zero growth for 20 years to 50% growth in a decade creates many opportunities, but also unprecedented challenges. While nuclear and natural gas are currently receiving the headlines, their limitations will allow cheap, modular, and scalable renewables to carry the load.

Long Lead Times vs Build Now Mindset

Electricity is already entering a period of rapid growth, and the reality of supply chain constraints is becoming apparent. The nuclear power industry has not built in the US at any volume since the 1980s. Rebuilding an entire supply chain from scratch with new technology is not a quick endeavor. Small Modular Reactors (SMR) are currently receiving press time, yet none have been built at scale. Demonstration projects are only now entering the permitting and construction process. Nuclear will likely see increased investment, but electrons from new nuclear power will likely not be on the grid until the early 2030s. Even then, the at scale projects might start in the late 2030s, as many companies will not make major commitments for SMRs until the grid scale demonstrations projects have been built and the investment case has been proven.

Natural gas, often touted as a cure-all, also has massive limitations. The biggest challenge for natural gas? Supply chains’ capacity has been stagnant for a decade. Despite an uptick in demand, it will take the next few years to attempt to scale production. On top of that, while demand is booming and the backlog is 6 or 7 years, manufacturers are hesitant to invest in massive capacity expansions. Policy changes and technological changes could rapidly cool demand. The last thing a manufacturer of natural gas turbines wants is to expand capacity just in time for the demand boom to come to an end.

Small Solutions to Big Problems

As the grid reaches capacity and nuclear and natural gas baseload solutions have limited capacity to increase scale, the solutions must come elsewhere. The answer? Renewable energy (Solar and wind) and battery storage. One of the immense benefits of renewables, especially solar and battery storage, is the low-cost modular designs. Unlike large baseload plants, solar panels and battery storage can be built quickly, as all the parts are manufactured on a massive scale. Not only does this help speed up build out but also explains why solar and battery costs have dropped 90% over the past decade. These factors will continue to be the driving factors behind renewables and storage development. Even without subsidies, these technologies are cheaper than conventional baseload plants. Also, while solar and wind tax credits sunset in 2027, tax credits for battery energy storage continue at 30% until 2032. The impact of the change brings some challenges, but solutions exist and will continue to develop.

When looking at the Levelized Cost of Energy in $/MWh, a new utility scale solar and storage project will cost between $50-131 per MWh (which, for purposes of this example, does not include battery storage incentives even though that will continue through 2032). That cost is comparable to the cost of a combined cycle natural gas plan, which costs between $50-110 per MWh. Both of those options are much cheaper than new nuclear, which will cost between $130-220 per MWh. On top of the cost advantage, in the age of congested grids, renewables and battery storage are still modular and easier to build for onsite power generation.

Fuel cells are another modular solution likely to benefit over the next decade. Most people think of fuel cells for hydrogen mobility, yet the biggest growth for fuel cells will be for stationary power and combined heat and power applications. Over the past five years, fuel cells have already started to gain market share for data center power. With the increasing challenges of the grid, an opportunity might exist for fuel cells as more major energy users request onsite power. Fuel cells also benefit from the 30% tax credit that will continue until 2032.

The Winners of the Increased Energy Opportunity

A number of potential winners stand out over the next five years of energy development. The first: owners of existing baseload plants, especially nuclear power with a high-capacity factor. The next winners? Companies that build out transmission and distribution, as the grid will need a massive upgrade to handle the increasing load. The next beneficiaries will be those making large energy systems. Finally, as the grid and large baseload plants hit production limits, it will likely be distributed energy that fills the gap which could run into dozens of GW over the next 10 years. These systems, whether solar and battery storage or fuel cell technologies, are set to benefit as the gap between energy demand and grid capacity grows. While much is being mentioned of the OBBB and the impact on electricity generation, global market forces are still in the driver’s seat.

The Long-Term Outlook: Renewable Energy and the One Big Beautiful Bill

The OBBB is dominating energy transition headlines, but it is just a small part of a larger trend. On a global level, more investment is flowing into renewables and battery storage investments than traditional energy sources. Of that global total, the US only accounts for about 20% of global energy investment. With the tax credit changes in the OBBB, that impacts about 1-2% of global investment. As the constraints of traditional energy generation persist - long lead times, high initial capex, part shortages, etc. - more investment will continue to migrate to modular systems that can scale rapidly and cheaply. As the world demands more electrons this trend will likely continue for decades. 

For further discussion regarding energy and investments, please contact us at chapman@ridgecreekglobal.com.