Horns of the U.S. Government Energy Grant Funding Dilemma
In late 2025, the Trump administration advanced measures that reset federal energy priorities. The headline moves expanded support for coal, canceled federal funding for offshore wind projects, and terminated more than $7.5 billion in previously awarded renewable energy grants. Together, these actions have immediate implications for transactions and project finance across the power sector.
Coal Industry Support: Leasing, Funding, and Compliance Relief
On September 29, 2025, the Department of the Interior opened an additional 13.1 million acres to coal leasing, reduced leasing royalty rates from 12% to 7%, and committed to faster approvals. In parallel, the Department of Energy ("DOE") announced $625 million to recommission shuttered coal plants, retrofit existing units, and fund projects in rural communities, with additional support for advanced wastewater and natural gas co‑firing systems. The EPA also extended timelines under its steam electric effluent rule and signaled flexibility on regional haze implementation, easing near‑term compliance burdens.
Federal Renewable Energy Funding Cancellations
On the renewable energy side of the ledger, the Department of Transportation canceled $679 million previously approved for a dozen offshore wind projects, redirecting funds to shipbuilding and traditional energy infrastructure. The decision has drawn litigation and criticism from states and industry, adding uncertainty to development schedules for advanced‑stage projects.
DOE's support of the coal industry includes the cancellation of more than $7.5 billion in previously awarded project funding across 321 awards supporting 223 projects, with a significant share in the Office of Energy Efficiency and Renewable Energy. Notable cancellations include conditional commitments for California's ARCHES regional hydrogen hub (about $1.2 billion) and the Pacific Northwest Hydrogen Hub (about $1 billion). DOE stated that roughly a quarter of the rescinded awards were made between Election Day and Inauguration and that recipients had 30 days to appeal.
Implications for Future Energy Projects and Transactions
Government grants and conditional commitments usually validate and encourage investment by private equity, tax equity, and non‑recourse debt for first‑of‑a‑kind and early‑stage technologies. If awards issued under legislative authorization can be rescinded by a subsequent administration, that validation effect weakens. Private capital is likely to demand higher returns, stronger contractual protections (e.g., termination compensation and step‑in rights), clearer appropriations/obligation status, and milestone‑based disbursements held in escrow.
Future government support also may need to cover a larger portion of project costs—or be paired with credit enhancements, such as federal loan guarantees, state green bank participation, first‑loss reserves, or insurance wraps—before private capital and credit proceed. Developers also could prioritize jurisdictions with more durable policy frameworks, lean on long‑term offtake from investment‑grade buyers, and incorporate conditions precedent tied to the irrevocability of public funding. In the near term, transaction timelines will likely lengthen, bridge financing needs may rise, and cost‑of‑capital assumptions may increase.
Despite the newfound support for coal industry development, the longer‑term outlook remains shaped by competition from natural gas and renewables, state clean‑energy mandates, and litigation risk. For renewable energy development, a tighter financing environment and longer development timelines should be expected. Large capital‑intensive projects that rely on multiyear, federal partnerships are particularly exposed to policy reversals, increasing contingency needs and risk pricing. Sponsors should expect closer lender scrutiny of federal‑funding conditions.
Conclusion
These actions mark a pivot toward traditional energy and away from certain forms of federal renewable‑energy support. While coal may see near‑term benefits, offshore wind and innovative technologies face heightened policy risk and financing friction, potentially reshaping deal structures and diligence for the foreseeable future, though certain state efforts seek to continue to support renewable projects.
