The US is losing the electrification race

A Senate bill will slow things down more
Bloomberg

Today's newsletter looks at how the US is losing the race to electrification. It comes as the US clean energy industry is preparing for the worst outcome from a tax and spending bill under debate in the Senate. For the full story with updates, head to Bloomberg.com

A different kind of power struggle 

By Akshat Rathi

The US is lagging developing nations in Asia in the race to electrify — and that gap may increase if lawmakers decide to add duties on new solar and wind farms to pay for President Donald Trump's tax cuts.

A new report from clean energy think tank Ember finds that countries such as Vietnam and Bangladesh are growing their share of electricity in the total energy mix faster than the US. Since 2000, China has doubled electricity's share as a proportion of primary energy to nearly a quarter, while the US and Europe have stagnated.

"Electrification is the more consequential race today" for countries looking to grow their economies, says Daan Walter, researcher at Ember. Electricity doesn't just help increase efficiency and lower costs of operation, he says. Industries supporting electrification, such as electric-car manufacturing and heat-pump installers, are also growing faster than other sectors.

The report comes as the US Senate continues to debate a tax and spending bill. A group of Senate Republicans is pushing to soften an aggressive planned phase out of subsidies for wind and solar projects in the package. An amendment being circulated would also do away with a proposed new excise tax the Senate bill would slap on wind and solar projects that use components from China and other "foreign entities of concern." 

Read More:  Senate Pulls All-Nighter on Trump Tax Bill With GOP Divided

Most Asian nations are importers of fossil fuels, which makes electrification and adding renewables an economic imperative. As the world's largest producer of oil and natural gas, the US seemingly doesn't have the same economic incentives. 

And, yet, the country's electricity demand is becoming tougher to meet with data center power consumption from artificial intelligence on the rise.  Shortages of equipment and people, alongside regulatory hurdles, are making it hard to build the energy supply.  

Meeting growing power demand is pushing Asian economies, even outside China, to build out the manufacturing sector for basic grid equipment, such as transformers and cables. Vietnam and Indonesia rank high in Ember's report on countries that are rapidly electrifying, while others including India, Pakistan and Sri Lanka are outperforming with solar and wind power's share of the grid mix.

Walter said the lag in electrification is a lost opportunity for developed countries. "Renewables can make electricity cheaper," he said. "Electrification upgrades the everyday technologies households rely on — cars, heating and control systems — and delivers savings."

Read the full version of this story and Bloomberg Green's series on bottlenecks to the energy transition (Part 1 and Part 2) on Bloomberg.com.  

An existential threat for solar and wind

By Michelle Ma

As Senate Republicans debate President Donald Trump's tax and spending bill, renewable energy companies are reeling at what looks like a worst-case scenario for the industry.

The latest version of the Senate bill includes a new excise tax on wind and solar projects with certain Chinese components, a late addition that stunned renewable advocates. Given China's dominance of the solar supply chain, developers would struggle to find ample equipment, including wafers, from other countries.

A wind turbine at CS Wind in Pueblo, Colorado, in 2023.  Photographer: Daniel Brenner/Bloomberg

The bill would also roll back clean energy tax credits sooner than the House version of the package. It would require wind and solar projects to be fully operational by the end of 2027 to qualify for incentives. Many observers had expected the Senate to ease the phaseout — not accelerate it.

The moves by the Senate, as it seeks to cut spending to offset trillions of dollars in tax cuts, "came out of left field" and shocked the industry, according to Ben King, an associate director with research group Rhodium Group's Energy & Climate practice. 

If passed in its current form, the "One Big, Beautiful Bill" would threaten billions of dollars of investments, hobbling energy development at a time of skyrocketing power demand. It would also risk causing household energy bills to spike higher.

"The willingness of the Senate to suggest policy changes that will dramatically increase cost of energy to their consumers and sacrifice significant job growth is very surprising," said Jason Grumet, chief executive officer of the American Clean Power Association, or ACP, an industry trade group. "It suggests that the effort to repolarize this debate is now taking precedence over their actual constituent interests."

Republican Senators Joni Ernst and Chuck Grassley of Iowa, along with Lisa Murkowski of Alaska, worked Monday to advance an amendment to soften the clean electricity tax credit phaseout and jettison the proposed excise tax. The tax is "unprecedented," and "the extremity of the proposal may motivate key Senators to support excise tax repeal," analysts for research provider Capstone LLC wrote in a note Monday. 

Read more: Senate Republicans Seek to Ease Solar and Wind Tax Credit Cutoff

ACP estimates the new tax would raise costs on American clean energy companies by $4 billion to $7 billion in the next 10 years, while Rhodium projects it will result in a 10% to 20% increase in the cost of building wind and solar. 

That cost increase would "drive down deployment" and, for some new solar and wind facilities that would otherwise be economically competitive with natural gas, push them "out of the sweet spot," said King. Because this kind of policy has never been implemented before, the uncertainty it introduces would have a "chilling effect" on investment in renewables, he added. 

Read the full story on Bloomberg.com. 

Dramatic interruption 

300
The current proposal in the US Senate would prevent this many gigawatts of wind and solar — on par with the output of 300 nuclear reactors — from being brought online within the next 15 years, the American Clean Power Association estimates.

Drawing criticism  

"[P]olitical suicide for the Republican Party."
Elon Musk
Chief executive officer of Tesla Inc. and SpaceX
This is how Musk  characterized the version of the Senate bill on his platform X on Saturday, adding it would be "utterly insane and destructive" in its impact on energy.

More from Green

One of the most successful hedge fund strategies of recent years — insurance-linked securities (ILS) — is latching on to an old idea whose popularity is suddenly soaring.

Parametric insurance, where policyholders get quick payouts if weather-related metrics are met, used to be the preserve of small businesses and farmers in developing countries. Now, it's a rapidly growing market luring large corporations across the rich world. 

The market for such products is estimated to almost double to $34 billion in the decade through 2033. They're filling a gap left by other types of insurance policies, as climate change and more frequent extreme weather events challenge standard coverage models. Read the full story on Bloomberg.com. 

Members of the Mexican Army conduct sweeps after Hurricane Beryl made landfall in Tulum, Mexico, on July 5, 2024. Photographer: Victoria Razo/Bloomberg

The UK energy regulator plans to boost profits for companies investing in the grid to underpin a huge push to upgrade critical infrastructure over the next five years. Ofgem proposed a cost of equity of up to 6% for private investment in grid companies, according to its draft determinations for 2026-2031.

Australia started a A$2.3 billion ($1.5 billion) program to encourage households to buy batteries in an effort to absorb excess renewable energy and curb price swings in one of the world's most volatile power markets.

Kevin Stiroh, the Federal Reserve's most senior official focused on the financial risks associated with climate change, has left the US central bank, according to people familiar with the matter. Stiroh had moved to the Fed's Board of Governors in 2021 to take on a newly-created leadership role on climate.

Weather watch

By Joe Wertz and Nayla Razzouk

Europe's heat wave is set to peak over the coming days, triggering red alerts from France to the Swiss Alps, warning people to take extra precautions against the extreme conditions.

The top of the Eiffel Tower will be shut to visitors over the next two days, as temperatures in Paris climb as high as 41C (105.8F) on Tuesday. Red alerts have been issued for the French capital and 15 other departments due to the heat wave that's been baking the country since June 19. London could hit 34C, before cooling from Wednesday.

Temperatures across the Iberian peninsula could climb even higher, with 43C forecast for parts of Spain, where an unusually persistent weather pattern made last month the hottest June on record. Similar highs could be reached in Beja in Portugal, where a June record of 46.6C was recorded in Evora on Sunday. 

A tourist shields herself from the sun near the Eiffel Tower, in Paris. Photographer: Ludovic Marin/AFP/Getty Images

Worth a listen

Climate tech is not the hot investor thesis it once was a couple of years ago. After several record breaking years, and billions of dollars being poured into climate startups, venture capital investments are way down. On the latest episode of Zero, Akshat Rathi speaks with Mike Schroepfer, who runs Gigascale Capital, a venture firm focusing on climate investments, and used to be Meta's chief technology officer. Schroepfer shares his views on the current investment climate, the danger of funding cuts to US research, and why demand for AI will prompt a new wave of energy innovation. Listen now, and subscribe on AppleSpotify, or YouTube to get new episodes of Zero every Thursday.

"Data Center Alley" in Sterling, Virginia. Photographer: Pete Kiehart/Bloomberg

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