Regulated utilities still likely to pursue decarbonisation despite changes to U.S. Federal incentives for renewable energy – Trump 2.0

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The One Big Beautiful Bill Act (OBBBA), signed on July 4th, 2025, reverses key clean energy provisions of the Inflation Reduction Act (IRA), phasing out wind and solar tax credits and cancelling green infrastructure funding. This shift introduces cost and execution risks for utilities, especially for projects starting after 2027. Despite this reduction in federal support, rising electricity demand, state-level mandates, and ESG commitments are likely to continue to drive clean energy investment.

This paper examines the implications of OBBBA for the listed regulated electric utilities in our Global Listed Infrastructure (GLI) portfolio. It highlights the nuanced impacts across technologies, geographies, and regulatory environments, and outlines how utilities may adapt their strategies in response. The table below summarises the relevant OBBBA provisions that will be discussed.

Summary of relevant changes and potential impacts from OBBBA

While there are company specific impacts from this legislation when looking at the Electric Utilities sector, there are also wider consequences for the U.S.’s response to climate change and decarbonisation that will affect other sectors that rely on the decarbonisation of the country’s electricity supply. Especially given the Utilities sector contributes approximately 30% of the country’s carbon emissions, the decarbonisation of the electricity supply is a significant contributor to allow the U.S. to transition to a net zero economy. The chart below shows an initial estimate of the difference in clean energy development between 2027 and 2035 under the OBBBA and the provisions of the IRA.

Estimated increases in clean electricity production between 2027 and 2035 under the OBBBA compared to the IRA

Source: Jenkins, J., Farbes, J. and Haley, B. (2025) “Impacts of the One Big Beautiful Bill On The US Energy Transition – Summary Report”. REPEAT Project, July 3, 2025

The impact on the U.S.’s ability to meet previously set carbon reduction targets, which included a 40 – 44% reduction by 2030 over 2005 levels set under the Biden administration, is shown in the chart below. This demonstrates the impact this bill is likely to have on current climate action, with emissions projected to only slightly decrease from this year out to 2030 with the passing of the OBBBA. The estimated difference in emissions reduction by 2035, compared to the 2005 baseline is 25% under the OBBBA vs 40% under the Biden-era policies. With this lost ground any future action the U.S. chooses to take will need to make up for this pause in carbon emissions reductions.

Comparison of historical and estimated U.S. Greenhouse Gas Emissions under the OBBBA and Biden-era policies

Source: Jenkins, J., Farbes, J. and Haley, B. (2025) “Impacts of the One Big Beautiful Bill On The US Energy Transition – Summary Report”. REPEAT Project, July 3, 2025

How could this impact company level plans

With the changes in subsidies and incentives/disincentives for the different clean energy technologies outlined above, there are a number of potential outcomes that are worth monitoring for the listed electric utilities in our GLI Portfolio.

While looking at the potential impacts of the OBBBA in isolation, there is a lot to suggest that incremental solar and wind generation in the U.S. has a shortened future. However, there are other dynamics for regulated electric utilities that result in a more nuanced outcome than the removal of IRA subsidies might suggest.

Decarbonisation trajectories are likely to slow, but not flatten

The dramatic growth in electricity demand due to drivers such as the growth in AI usage and increasing electrification is still on track and utilities will need to invest for this. Regulated utilities are covering this increased capacity with a combination of gas-fired generation, solar, wind and battery storage. While the amount of gas generation in forward looking plans is increasing, there still remains long lead times for turbines that can be up to 8 years, meaning these assets cannot be built quickly. Whereas, renewable generation combined with battery storage still offers faster construction, albeit with grid interconnection delays still impacting development that can stretch timelines out to 5 years.

Although the safe harbour criteria is still to be finalised by the Department of the Treasury, projects that can satisfy these requirements will still be able to earn and receive the federal investment and production tax credits, meanings their costs won’t substantially change. Notionally, this means that projects will need to have started “substantial construction” before 4^th July 2026 and be in service before 31 December 2027.

Utilities periodically re-evaluate their integrated resource plans that are shared with their respective regulators. Some decarbonisation timelines may have to be extended with the combination of electricity demand growth and the IRA-era subsidies ending earlier for solar and wind developments.

The combination of electricity demand growth and removal of incentives could potentially lead to the deferral of retirement plans for some existing coal generation assets. However, given that any retirement plan requires many years to finalise and input from a number of stakeholders, including approval by regulators, these are not likely to be extended in too many cases. Retirements may be deferred in instances where there is generation capacity shortfalls or where construction of new generation assets is delayed.

While we are invested in utilities that have nuclear generation assets and see the benefit of this technology in terms of providing baseload, zero carbon electricity, we do not anticipate a significant acceleration in the roll out of nuclear generation through 2035 regardless of these policy settings.

There are nine U.S.- based regulated Electric Utilities in our Portfolio and only one is without a net zero emissions target. However, more importantly in this context, all nine have near term carbon reduction targets of between 40% and 100% reduction in operational emissions by 2030. Achieving these targets may be impacted with the changing landscape.

There are still state level carbon reduction targets to meet

Importantly, state-level renewable portfolio standards and clean energy mandates still exist regardless of U.S.-level ambitions. Utilities operating in progressive states on the west and north east coasts are still required by law to add renewables and/or cut emissions, regardless of federal policy. These companies must proceed with much of their transition, albeit now with higher costs. In contrast, utilities in states without mandates (or with political opposition to renewables) may feel emboldened to hinder clean investments developments. The table below shows where these utilities are located and which state level targets they are operating under.

Summary of carbon targets and state level targets for GLI portfolio holdings.

Source: Relevant company disclosures and state government disclosures, as at 20 July 2025. Portfolio holdings by Resolution Capital, as at 30 June 2025. Stocks mentioned are for illustrative purposes only, not a recommendation to buy, sell or hold.

Investors can also differentiate utilities by their geographic footprint. For example, utilities in states like Texas or Oklahoma (with abundant wind but conservative governments) may face some political opposition to new renewables projects, however due to the quality of wind resources and established industry in Texas there is still likely to be significant wind generation development in that state. Utilities in the Midwest (some of which lobbied for better terms for wind and solar projects in the OBBBA) could continue modest renewables growth. Ironically, under the IRA, there has been a significant amount of clean energy related job creation and developments in Conservative states, so state level support for these projects is likely to remain.

On the other hand, West Coast utilities (e.g., California) face carbon reduction and clean energy generation targets due to state law and will still have to provide low carbon electricity to their customers. However, they will do so with less federal aid, making it more costly for consumers. Being selective, investors might favour utilities with optionality to pivot investments towards other priorities first.

While fossil fuelled generation faces less pressures in the near term, regulated utilities are still motivated to replace coal…

OBBA changes could also benefit fossil fuel generation assets. Independent Power Producers with large coal or gas fleets could enjoy a longer runway on those assets, now that the threat of premature obsolescence from federal climate policy is reduced. Moreover, if overall generation capacity additions slow, capacity margins could tighten, potentially raising wholesale power prices.

However, regulated utilities are still likely to be motivated to retire their coal generation assets from a financial perspective given the potential for accelerated depreciation they are afforded and the growing operational inefficiencies and maintenance requirements. The chart below shows the breakdown of generation sources in our U.S. based Electric Utilities holdings. Only Ameren has a majority of thermal coal generation capacity, whereas the remainder have various combinations of natural gas, nuclear or renewables.

Breakdown of electricity generation sources for U.S.-based Electric Utilities portfolio holdings.

Source: Company disclosures, MSCI ESG Research, Resolution Capital, 2025. Stocks mentioned are for illustrative purposes only, not a recommendation to buy, sell or hold.

Given the dynamic drivers of accelerating demand, shifting economics of generation technologies and the potential for politics to drive policy changes; it is likely that regulated utilities’ climate targets will evolve but not radically change given the many different stakeholders to balance.

In the end, regulated utilities are still likely to carry on with their decarbonisation

Ultimately, investors in electric utilities should recognise that U.S. policy has pivoted decisively back toward fossil fuels, reshaping the sector’s outlook. The One Big Beautiful Bill Act effectively terminates federal wind and solar tax credits for new developments commencing after 2027 (accelerating their expiry from 2032), and President Trump’s follow-up executive order will ensure that agencies strictly enforce those phase-outs and remove any preferential treatment for renewables. This is likely to mean slower clean energy development after 2027 and potentially extended operational life for fossil fuel generation assets.

However, it may not be the clean energy death knell that it first appeared to be. Regulated utilities are still likely to continue with the decarbonisation strategies given electricity demand growth drivers and supply chain complications still mean that additional generation capacity is needed and that solar, wind and battery storage are likely to have a role in that capacity addition. Additionally, decarbonisation and clean energy mandates at the state level are also likely to mean that regulated utilities continue their plans for clean energy generation development and the planned retirements of coal generation plants.

Further information

Please contact the Resolution Capital Client Services team at clientservices@rescap.com.

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