Tariffs, Tempests, Turnarounds: What’s Next for Renewable Energy?

15 January 2025

3 min read

Jody Gunderson| Managing Principal—AB CarVal

Xiaoyu Gu| Managing Director—AB CarVal

A look at how the renewable energy opportunity may and may not change.

US president-elect Donald Trump’s planned tax and trade policies may alter investment opportunities in renewable energy. It won’t, in our view, put an end to them.

Renewable energy is the fastest-growing source of electricity in the United States, and technological advances and investment in clean energy infrastructure have helped make it among the cheapest sources, too. That may change if Congress raises tariffs on goods from China, the largest producer of solar panels and the lithium-ion batteries used in utility-scale energy storage.

There’s also the possibility that an incoming Republican president and Congress will roll back some of the renewable tax credits in the Inflation Reduction Act (IRA). Since it was adopted in 2022, the law has supercharged clean- energy investment, which hit a record $71 billion in the third quarter of 2024.

But while federal policy is a key consideration for investors, it isn’t the only one with the power to shape potential risks and returns. State and local policies matter, too—and these helped to drive clean energy development during the first Trump administration.

Today, renewable technologies such as solar and wind are cost-competitive with conventional energy generation even without tax subsidies.

Here are three things that we think private credit investors should keep in mind:

1) Electricity Demand Will Keep Growing

The 60-year-old US power grid already struggles to meet today’s needs, and the rapid growth of generative artificial intelligence should only increase demand (Display).

More Power Demand, Less Supply

Bar charts showing expected 38% increase in US power demand by 2040 and lack of supply to meet it.

Current analysis does not guarantee future results.
TWh: terawatt-hour
*Global Energy Perspective 2023, McKinsey & Company, October 18, 2023; Annual Energy Outlook 2023, U.S. Energy Information Administration,
March 16, 2023.
As of September 30, 2024
Source: Bloomberg, Electric Reliability Council of Texas, Morgan Stanley, U.S. Energy Information Administration, McKinsey & Company, NextEra Energy and AllianceBernstein (AB)

Wood Mackenzie, a data and analytics provider for the energy sector, estimates that AI software powered by large language models will require a rapid ramp-up in data center capacity, driving electricity demand growth of 10%–20% per year through 2030.

If the Trump administration embraces an “America First” policy that emphasizes bringing more manufacturing back onshore, the need for additional power to meet industrial and commercial demand may grow even faster. As we see it, this means renewables will remain a key part of the solution. They may share the spotlight with conventional power sources if utilities delay the retirement of coal-burning plants and accelerate the construction of natural gas–fired ones. But adding conventional energy capacity takes time.

For investors, this may add up to new openings to finance the utility-scale battery storage required to address the issues of intermittent power generation that come with solar and wind. These projects typically require customized financing solutions, and private lenders often have greater flexibility than banks to structure suitable solutions.

2) Focus on Late-Stage Development

Expected changes in federal policy may accelerate the development of existing projects, particularly if momentum to repeal or water down the IRA’s renewable tax credits builds as the year goes on. Investors have already started to take advantage of prevailing tax laws by safe harboring certain types of equipment to lock in existing credits, and in anticipation of higher tariffs. In the US tax code, safe harbor rules allow developers to qualify for tax credits based on when substantial work began, even if the law changes while the project is still being completed.

But the need to shore up an overextended power grid, in our view, raises questions about a full IRA repeal. So does the investment and job creation the IRA has delivered to many states—both red and blue. We think opportunities in commercial and industrial solar development, where state-level and utility mandates have created strong underlying demand, are likely to persist.

If the IRA is ultimately repealed, tax credits would likely be phased out gradually to avoid disrupting businesses. But we think certain renewable energy sources will remain part of the overall mix. For example, lower input costs and operating expenses have steadily driven down the average cost of building, operating and maintaining utility-scale solar power systems in the US even without tax credits.

The regulatory and investment outlook outside the US presents a clearer picture. In Europe, power generated by solar and wind overtook fossil fuel–generated power in 2024, and the market is expected to more than double in size by 2030.

3) Deal Structuring Matters

Credit investors by nature tend to focus on what could go wrong—even when things are going right. Though we see many reasons why the outlook for renewable energy remains favorable, it will take time for the specifics of the new administration’s policy to become clear. For this reason, where investors rank in the payment structure—known to creditors as the “waterfall”—may be more important in the months ahead.

We think the headwinds and uncertainty around renewables in the US may increase the appeal of being near the top of the waterfall on higher-risk investments. In such structures, lower-tiered creditors only receive principal payments after higher-tiered investors are paid back in full.

Investors may have to be more selective in 2025 as new policies crystalize. But we expect opportunities in key renewable technologies, including utility-scale solar and battery storage, to persist.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Authors

Jody Gunderson

Jody Gunderson is a Managing Principal and member of the Investment Committee for AB CarVal, responsible for leading the firm’s investment strategy and management, as well as its global loan portfolios and clean energy businesses. In addition, she manages investments in asset-backed securities globally, including residential mortgage-backed securities, commercial mortgage-backed securities and collateralized loan obligations. Prior to joining AB CarVal in 1994, Gunderson was a manager in the financial services practice of PricewaterhouseCoopers, where she served investment fund, commercial banking and thrift clients. She holds a BS in business from the University of Minnesota and is a Certified Public Accountant (inactive). Location: Minneapolis

Xiaoyu Gu

Xiaoyu Gu is a Vice President and Managing Director for AB CarVal, where she is responsible for clean energy investments in North America. Prior to joining AB CarVal in 2013, Gu worked at Credit Suisse. She holds a BA from Harvard College, an AM from Harvard Kenneth C. Griffin Graduate School of Arts and Sciences, an MBA from Harvard Business School and a JD from Harvard Law School. Location: Minneapolis

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Tariffs, Tempests, Turnarounds: What’s Next for Renewable Energy?

1) Electricity Demand Will Keep Growing

2) Focus on Late-Stage Development

3) Deal Structuring Matters

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