States rush to build clean energy projects to tap expiring incentives

U.S. states are moving to establish a pipeline of large-scale renewable energy projects that can qualify for billions of dollars in expiring federal tax credits. 

California, Colorado, Minnesota, New York, New Jersey and Oregon are among the states expediting renewable energy projects eligible for a 30% investment tax credit. Those subsidies can help lower power prices as soaring electricity bills become a top issue in the 2026 elections and data centers drive up energy demand. But solar and wind farms need to start work by July 4 of this year and have four years to complete construction in order to qualify. 

"It is critical to get projects that qualify for these credits, primarily for customer affordability," said William Walsh, vice president for energy procurement and management at utility Southern California Edison Co.

The California Public Utilities Commission earlier this year ordered Southern California Edison and the state's other power providers to install an additional 6,000 megawatts of clean energy between 2030 and 2032 by pursuing "any viable projects that can still qualify for federal tax credits." That's enough capacity to power more than a million homes, and it's expected to be largely supplied by solar and battery energy storage projects that have already applied for connection to the grid, according to Walsh. 

Battery projects will still qualify for tax credits as long as construction starts by the end of 2033, though it can take years for developers to find suitable building sites, undergo environmental reviews and obtain necessary permits before breaking ground. 

Walsh said that even without the new mandate, Southern California Edison has been "trying to essentially contract as much as reasonably possible" for projects that can obtain tax credits in part to fulfill ongoing renewable energy requirements to help the state achieve its target of carbon neutrality by 2045. Blue and purple states that have set goals to reduce carbon emissions or generate more renewable energy are the ones taking action to secure the tax credits, which developers can use to offset their tax liability or sell to investors.  

Those tax credits are among the last of Biden-era incentives to survive the Trump administration's campaign against wind, solar and other clean technologies. While the federal tax bill enacted last year eliminated subsidies for the purchase of electric cars and heat pumps last year, it phases out tax credits for utility-scale technologies. 

In response, the Colorado Public Utilities Commission in February approved 3,200 megawatts of new solar, wind and battery storage projects proposed by Xcel Energy Inc. that the utility expects to be in service by the summer of 2029.

Robert Kenney, president of Xcel Energy's Colorado operations, said the tax credits for those 10 projects are worth about $5 billion and will lower the cost of the installations by 39% when additional incentives are included.

He said Xcel Energy is also pursuing expedited approval of battery storage projects in Minnesota, where the utility is taking advantage of a program that lets it avoid a years-long wait for approval to connect to the grid.  

"There was broad recognition that we needed to be able to capture these tax credits," said Kenney. He noted that spiking electricity demand from new data centers means "we're going to need to add significant amounts of capacity." 

The governors of New York and New Jersey, meanwhile, have issued executive orders to fast-track permitting of renewable energy projects that can qualify for federal tax credits. Oregon in March passed legislation to streamline permitting of such projects. 

George Hershman, CEO of San Diego-based solar and battery developer SOLV Energy, said he expects the explosive growth of data centers will be the biggest incentive for renewable energy projects.

"Energy demand is driving more opportunity than the step down of the investment tax credit," he said.

But for projects hoping to earn tax credits, BloombergNEF analyst Derrick Flakoll said that circumstances beyond developers' control can determine whether a project finishes within four years from the start of construction. "Supply chain snarls, local permitting challenges and other operational issues may delay projects," he said. If that happens, Flakoll said, the Internal Revenue Service will determine if a project still can obtain the tax credit. 

Denver-based solar developer Pivot Energy plans to bid for a couple of the Colorado programs. "Xcel Energy wants us to achieve the tax credit timelines as well because they recognize it will result in lower cost to consumers," said Tom Hunt, Pivot's chief executive officer, who added that he expects the bulk of his company's more than 800 projects under development across the US to qualify.

"Everyone is trying to move forward quickly," he said.