Navigating Emerging Political Perils in Renewable Energy Ventures
In a significant turn of events, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has introduced substantial headwinds for U.S. renewable energy development. The Act, which significantly restricts or repeals many major clean energy tax credits, has increased political risks and uncertainties for investors and project developers.
The OBBBAA has rolled back tax credits and environmental funding that had previously promoted clean energy investment. For instance, it phases out credits for electric vehicles, EV charging, green hydrogen, and home electrification between 2025 and 2027. Moreover, it limits wind and solar tax credits to projects that begin construction by mid-2026 or come online by late 2027 under stringent new supply chain documentation rules. Additionally, the Act rescinds several IRA appropriations related to environmental justice, training, green infrastructure, and state environmental programs, further dampening support for clean energy expansion.
This changing political landscape has forced developers and investors to rely more on contract protections and political risk insurance (PRI) to mitigate heightened risks from federal policy changes and executive actions. PRI and amended force majeure contract provisions are thus emerging as important tools for risk management.
Jason Kosek, a shareholder in Anderson Kill's New York office and co-chair of the firm's Energy and Renewables Industry Group, emphasises the importance of PRI in mitigating losses from the accelerated expiration of various tax credits. In fact, PRI coverage can extend for several years when covering a major infrastructure development. For instance, Marsh, an insurance broker and risk advisor, arranged a PRI package for a $36 million renewable energy project powering a lithium mine in Mali.
The temporary suspension of projects, such as the Empire Wind 1 offshore wind project off the coast of New York, has led to substantial costs for project stakeholders. For projects like Atlantic Shores Offshore Wind, a force majeure clause that explicitly lists political risks could provide a stronger basis for the developer to seek relief from performance obligations.
The Trump administration's intervention to pause the Empire Wind 1 project and the subsequent reversal of the stop-work order underscores the potential impact of political risks on renewable energy development. In such an environment, PRI could be a crucial safety net for developers and investors.
In the developing world, the World Bank Group's new $150 million energy program for Sri Lanka includes $40 million in guarantees in its first phase to lower risks for private investors and energy producers. Dan Riordan, head of political risk and credit at MSIG USA, estimates that about three quarters of demand for PRI is in the developing world, but asserts that "We're seeing there's strong interest in many of the developed markets, even in North America."
The New York Court of Appeals in Kel Kim Corp. v. Central Markets held that a force majeure defense is only valid if the clause explicitly includes the specific event preventing performance. This underscores the importance of carefully crafting force majeure clauses to address political risks.
From 2014 to 2023, the U.S. added more than 121 GW of utility and small-scale solar capacity - a 688% increase, and 83 GW of wind capacity - a 130% increase. However, the OBBBA's impact on renewable energy development could mark a substantial shift from the growth trajectory driven by the Biden-era Inflation Reduction Act.
In conclusion, the One Big Beautiful Bill Act has introduced significant challenges for U.S. renewable energy development. However, political risk insurance and amended force majeure contract provisions are key elements in mitigating political risks for companies initiating or seeking to continue development of alternative energy sources.
Read also:
- "Germany appears less environmentally friendly compared to Texas, according to Harald Lesch's climate documentary"
- Texas Public Utility Commission issues $216 million loan for NRG's 456-megawatt gas power plant
- World's primary energy source expected to shift towards renewables by the year 2026, according to the International Energy Agency.
- Nuclear power facilities in northern France, operated by Alforrecas, have been decommissioned.
