Demand spike, incentives bust, and tariffs: Renewable energy’s biggest stress test is here
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Electricity grid demands are on the rise in part due to energy-hungry technology like AI, and while experts believe renewable energy alone is not enough, it is essential to a broader supply equation. But with funding freezes, subsidy walk backs and tariffs on key components all on the table, solar, wind, and hydrogen companies are working harder than ever to make their business models work, even if they never intended to rely on federal support for the long term.
“One of the hats I used to wear was planning for the City of New York. For the longest time, there was decreasing [energy] demand,” said Aseem Kapur, chief revenue officer of GM Energy, an arm of General Motors that the company introduced in 2022. “Over the course of the last five or so years, that equation has changed. Utilities are facing unprecedented demand.”
Beyond New York City, U.S. energy demand is poised to grow upwards of 16% in the next five years, a big difference from the 0.5%it grew each year on average from 2001 to 2024, according to the Center for Strategic & International Studies.
For the renewable energy companies looking to break into the mainstream, subsidies have helped them get through their early days of growth. But President Trump has targeted these solutions from the first day of his presidency. In an executive order from Jan. 20, the Trump administration promised to “unleash” an era of fossil fuels exploration and production while also eliminating “unfair subsidies and other ill-conceived government-imposed market distortions that favor EVs over other technologies.” Last week, Trump issued an EO pushing for more coal production.
In a six-year study breaking down energy subsidies from the U.S. Energy Information Administration from 2022 (the most recent edition), 46% of federal energy subsidies were associated with renewable energy, making them the largest slice of the energy pie. At the same time, natural gas and petroleum subsidies became a net cost to the government in 2022, reversing what had been a source of revenue inflows.
“Every company I’ve talked to recognizes that subsidies were required to help them through an R&D cycle, but they all believed they had to get to a cost parity point,” said Ross Meyercord, CEO of Propel Software (and former Salesforce CIO), whose manufacturing software solution serves energy clients like Invinity Energy Systems and Eos Energy Storage. “Every company had that baked into their business model. It may happen faster than they were planning on, and obviously that creates challenges.”
Meyercord believes that clean energy companies can handle either a subsidy decrease or a rise in tariffs, but both at the same time will add substantial stress to the market, which could have negative downstream effects on the grid — and the people who rely on it.
‘Not going to get rid of fossil fuels overnight’
Like any energy source, Kapur says success always comes down to economics. In the current environment, with interest rates, and fears that inflation will reignite, he said, “it’s going to come down to, ‘What are the most cost-effective solutions that can be brought to market?'” That may vary by region, he added, but notes that solar and energy storage have already reached parity in many cases and, in some instances, are below the cost of producing energy from natural gas or coal-powered resources.
This economics equation is true even in Texas, where the state’s Attorney General Ken Paxton has voiced anti-renewables sentiment in favor of the coal market (his lawsuit against major investment firm BlackRock and others in late November claims these firms sought to “weaponize their shares to pressure the coal companies to accommodate ‘green energy’ goals”). Wind accounts for 24% of the state’s energy profile, according to the Texas Comptroller, suggesting a penchant for any energy source that’s viable and cost-effective.
“The reality is, we’re not going to get rid of fossil fuels overnight,” said Whit Irvin Jr., CEO of hydrogen energy company Q Hydrogen. “They are going to have a very significant piece in our energy ecosystem for decades, and as new technologies come out on a larger scale, the use of fossil fuels will be curtailed, but we need to continue research, development and innovation in a way that makes sense.”
Irvin emphasizes the need for innovation from all sides, including creating new technologies that have a massive impact on large scalability and carbon reduction. “We don’t want to turn off that spigot. We just want to make sure that it’s going to the right places,” he said.
Hydrogen energy itself is one such source of innovation. Hydrogen ranges in sustainability depending on the fuel it uses to source its hydrogen. For example, green hydrogen — the only climate-neutral form of hydrogen energy — stems from renewable energy surplus. Grey hydrogen stems from natural gas methane. Q Hydrogen is working to open the world’s first renewable hydrogen power plant that will be economically viable without a subsidy. Irvin Jr. says the company, which produces hydrogen using water, plans to launch its New Hampshire facility this year.
“Hydrogen fuel cells are a really good way to provide backup power or even prime power to a data center that would be considered essentially off grid,” said Irvin, likening hydrogen fuel cell production to a form of battery storage. While hydrogen is not the most economical because of its comparative immaturity, Irvin said heightened energy demand will outcompete cost sensitivity for tech companies requiring more and more data storage.
While hydrogen projects continue to reap federal incentives to propel the industry forward, Irvin said subsidies were never part of his company’s business equation. “If they do exist, we’ll be able to take advantage of them,” he said. “If they don’t exist, that will still be fine for us.”
But that might not be true for every alternative energy company depending on where they’re at in the R&D cycle. Changes in federal incentives have real power to shift the progression of renewable energy in the U.S., especially when combined with tariffs that could stifle companies’ international relationships and supply chains. Meyercord, Kapur and Irvin all foresee private industry partnerships making a huge impact for the future of the grid, but recognize that the strain is increasing as energy tech of all kinds becomes smarter and more grid-dependent.
Thanks to Trump’s repeated executive order attacks on US clean energy policy, nearly $8 billion in investments and 16 new large-scale factories and other projects were cancelled, closed, or downsized in Q1 2025.
The $7.9 billion in investments withdrawn since January are more than three times the total investments cancelled over the previous 30 months, according to nonpartisan policy group E2’s latest Clean Economy Works monthly update.
However, companies continue to invest in the US renewable sector. Businesses in March announced 10 projects worth more than $1.6 billion for new solar, EV, and grid and transmission equipment factories across six states. That includes Tesla’s plan to invest $200 million in a battery factory near Houston that’s expected to create at least 1,500 new jobs. Combined, the projects are expected to create at least 5,000 new permanent jobs if completed.
Michael Timberlake of E2 said, “Clean energy companies still want to invest in America, but uncertainty over Trump administration policies and the future of critical clean energy tax credits are taking a clear toll. If this self-inflicted and unnecessary market uncertainty continues, we’ll almost certainly see more projects paused, more construction halted, and more job opportunities disappear.”
March’s 10 new projects bring the overall number of major clean energy projects tracked by E2 to 390 across 42 states and Puerto Rico. Companies have said they plan to invest more than $133 billion in these projects and hire 122,000 permanent workers.
Since Congress passed federal clean energy tax credits in August 2022, 34 clean energy projects have been cancelled, downsized, or shut down altogether, wiping out more than 15,000 jobs and scrapping $10 billion in planned investment, according to E2 and Atlas Public Policy.
However, in just the first three months of 2025, after Trump started rolling back clean energy policies, 13 projects were scrapped or scaled back, totaling more than $5 billion. That includes Bosch pulling the plug on its $200 million hydrogen fuel cell plant in South Carolina and Freyr Battery canceling its $2.5 billion battery factory in Georgia.
Republican-led districts have reaped the biggest rewards from Biden’s clean energy tax credits, but they’re also taking the biggest hits under Trump. So far, more than $6 billion in projects and over 10,000 jobs have been wiped out in GOP districts alone.
And the stakes are high. Through March, Republican districts have claimed 62% of all clean energy project announcements, 71% of the jobs, and a staggering 83% of the total investment.
A full map and list of announcements can be seen on E2’s website here. E2 says it will incorporate cancellation data in the coming weeks.
Read more: FREYR kills plans to build a $2.6 billion battery factory in Georgia
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Tesla has reportedly delayed the launch of its new “affordable EV,” which is believed to be a stripped-down Model Y, in the United States.
Last year, Tesla CEO Elon Musk made a pivotal decision that altered the automaker’s direction for the next few years.
The CEO canceled Tesla’s plan to build a cheaper new “$25,000 vehicle” on its next-generation “unboxed” vehicle platform to focus solely on the Robotaxi, utilizing the latest technology, and instead, Tesla plans to build more affordable EVs, though more expensive than previously announced, on its existing Model Y platform.
Musk has believed that Tesla is on the verge of solving self-driving technology for the last few years, and because of that, he believes that a $25,000 EV wouldn’t make sense, as self-driving ride-hailing fleets would take over the lower end of the car market.
However, he has been consistently wrong about Tesla solving self-driving, which he first said would happen in 2019.
In the meantime, Tesla’s sales have been decreasing and the automaker had to throttle down production at all its manufacturing facilities.
That’s why, instead of building new, more affordable EVs on new production lines, Musk decided to greenlight new vehicles built on the same production lines as Model 3 and Model Y – increasing the utilization rate of its existing manufacturing lines.
Those vehicles have been described as “stripped-down Model Ys” with fewer features and cheaper materials, which Tesla said would launch in “the first half of 2025.”
Reuters is now reporting that Tesla is seeing a delay of “at least months” in launching the first new “lower-cost Model Y” in the US:
Tesla has promised affordable vehicles beginning in the first half of the year, offering a potential boost to flagging sales. Global production of the lower-cost Model Y, internally codenamed E41, is expected to begin in the United States, the sources said, but it would be at least months later than Tesla’s public plan, they added, offering a range of revised targets from the third quarter to early next year.
Along with the delay, the report also claims that Tesla aims to produce 250,000 units of the new model in the US by 2026. This would match Tesla’s currently reduced production capacity at Gigafactory Texas and Fremont factory.
The report follows other recent reports coming from China that also claimed Tesla’s new “affordable EVs” are “stripped-down Model Ys.”
The Chinese report references the new version of the Model 3 that Tesla launched in Mexico last year. It’s a regular Model 3, but Tesla removed some features, like the second-row screen, ambient lighting strip, and it uses fabric interior material rather than Tesla’s usual vegan leather.
The new Reuters report also said that Tesla planned to follow the stripped-down Model Y with a similar Model 3.
In China, the new vehicle was expected to come in the second half of 2025, and Tesla was waiting to see the impact of the updated Model Y, which launched earlier this year.
Electrek’s Take
These reports lend weight to what we have been saying for a year now: Tesla’s “more affordable EVs” will essentially be stripped-down versions of the Model Y and Model 3.
While they will enable Tesla to utilize its currently underutilized factories more efficiently, they will also cannibalize its existing Model 3 and Y lineup and significantly reduce its already dwindling gross margins.
I think Musk will sell the move as being good in the long term because it will allow Tesla to deploy more vehicles, which will later generate more revenue through the purchase of the “Full Self-Driving” (FSD) package.
However, that has been his argument for years, and it has yet to pan out as FSD still requires driver supervision and likely will for years to come, resulting in an extremely low take-rate for the $8,000 package.
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Environment
Podcast: how Elon killed Tesla Model 2, global EV sales surge, and Chinese EVs keep killing it
In the Electrek Podcast, we discuss the most popular news in the world of sustainable transport and energy. In this week’s episode, we discuss how Elon Musk killed Tesla Model 2, global EV sales surging, how Chinese EVs keep killing it, and more.
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