Changes in U.S. energy policy create challenges for supply chain planning
United States finalizes budget bill with major impacts on renewable energy subsidies
After weeks of negotiation, the U.S. Senate and House of Representatives passed a sweeping federal budget bill and it has now been signed into law by the president. The legislation includes significant changes to renewable energy subsidies initially enacted under the 2022 Inflation Reduction Act. These subsidies were targeted as part of broader efforts to reduce government spending.
The final legislation phases out key tax incentives for wind and solar investment by 2027 and terminates residential renewable energy tax credits for purchases made after 2025.
The legislation also includes new requirements to reduce the use of Chinese-made components for renewable energy projects that are already under way to retain their tax credits. Given China's dominant role in the global supply of solar panels, batteries, and other renewable inputs, these provisions are expected to have far-reaching implications for project costs and timelines.
The role of solar in supporting data centers
Both current and planned renewable energy projects could be delayed or restructured in response to the changing economic and regulatory landscape.
The change in support from the U.S. government creates uncertainty for utilities and others needing to decide which technologies to invest in for long-term success. U.S. energy consumption is expected to continue increasing, requiring both the infrastructure and power generation to meet future need.
Solar sales, down in 2024 for the first time in 12 years, had been forecast to rebound over the next two years due to the growth in artificial intelligence (AI). U.S. energy demand for the data centers that power AI could skyrocket 20-40% in 2025, with double-digit growth likely to persist for the next five years. Solar provides an energy source that can be quickly built, in addition to aligning well with top tech companies’ sustainability goals.
For existing solar installations, aging solar panels require regular maintenance and replacement. This is increasing the need for reverse logistics.
Middle East volatility
Volatility in oil and gas pricing has been a result of changing conditions in the Middle East, including cease-fire violations in the conflict between Israel and Iran. For example, the price of West Texas Intermediate crude jumped 4% on June 22, then fell over 7% on June 23. Whether the Strait of Hormuz remains open is key for the flow of crude oil into the global market. Any worsening conflict could limit the world’s oil supply, driving up both gas and other energy costs.
U.S. oil production constraints
During periods of global volatility that impact crude oil supply, discussions often turn to the ability of the U.S. oil and gas industry to increase production. Quickly ramping up production in the United States is more complex than many realize.
The U.S. refining industry typically operates at around 90% of capacity for current and projected crude production, according to the U.S. Government Accountability Office. But there’s limited ability to quickly take on large increases in production. Meanwhile, the U.S. oil and gas workforce has declined over the past two years due to increased automation, tech advancements, and a shift toward renewable energy.
Rising operational costs are also preventing some oil companies from putting new wells into production. Determining when the financials will be favorable is a delicate balance.
How to offset cost pressures
To help mitigate increased project and production costs, optimizing supply chain efficiencies will become increasingly important. For example, customers can get a full analysis of their supply chain through a C.H. Robinson Supply Chain Inspection Report using their historical transportation data. This report analyzes freight characteristics, shipment details, locations and spend.
Our Optimizer technology can can help minimize the number of shipments, travel time, and total miles for your unique freight and business requirements. Shippers save 8% on average and may save up to 30%.