A changing landscape for independent power producers

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Independent power producers (IPPs) have a pivotal role to play in meeting the exponentially growing energy demand in the US, amid increased urgency to develop and deploy reliable power generating projects. With regulatory frameworks in the industry evolving, driven by provisions in the One Big Beautiful Bill Act, IPPs face a host of complex risks and opportunities.

Between the accelerated phase-out of renewable energy tax credits, increased scrutiny of foreign suppliers, and interconnection bottlenecks, IPPs are reassessing project timelines, financing, offtake, and supply chain strategies, among other considerations.

Simultaneously, the energy mix from new project development is increasingly diversifying beyond battery energy storage system (BESS), solar, and wind, with growing emphasis on alternative power generation such as nuclear and natural gas. These are often collocated, introducing a host of new potential exposures.

Despite these challenges, there are significant opportunities for IPPs to innovate and lead in emerging energy technologies and flexible power solutions. By leveraging diversified energy portfolios and adapting to new policy incentives, IPPs can work to position themselves as key enablers of a resilient, sustainable energy future while capturing new revenue streams and market share. To do so effectively, IPPs must embrace a comprehensive, proactive risk strategy that emphasizes operational planning and long-term resilience.

A closer look at core challenges

As the energy and power sector evolves, power generation companies face challenges spanning demand, supply, financing, offtake, compliance, and project execution. Some of the most urgent risks include:

A dual squeeze for energy demand and supply: On the demand side, domestic electricity needs are rapidly rising, driven by the creation of new data centers, manufacturing capabilities, and the electrification of heating and transportation, which will require upgrades to grid capacity and reliability. On the supply side, power generation must compete with increasing US natural gas exports (notably LNG) in global markets; while also contending with supply chain disruptions for critical equipment (such as transformers and turbines); shortages of raw materials and rare earth metals; regulatory hurdles (including interconnection queues and nuclear permitting); and financing constraints.
Accelerated phase-out of renewable energy tax credits: With renewable energy power projects being one of the predominant additions to new energy generation in the past few years, the recent legislative changes have a significant impact on IPP strategy looking forward. The One Big Beautiful Bill mandates an accelerated timeline for renewable energy tax credits made available under the IRA, with the most urgent emphasis on wind and solar tax credits. Projects must begin construction before July 4, 2026, and be placed in service within four years, or meet substantial completion by December 31, 2027, to qualify for tax credits. Other technologies, including nuclear, hydro, geothermal, and BESS, face a phased reduction in credit value starting in 2033, culminating in a full sunset by 2036. This compressed timeline pressures developers to expedite project development and financing, potentially increasing execution risk and introducing a possible reduction in the longevity of the projects.
Evolving compliance requirements: Similarly, due to the One Big Beautiful Bill, projects sourcing from select foreign entities and foreign-influenced entities are navigating new compliance rules, including updates to safe harbor sourcing tables expected by the end of 2026. Additionally, escalating domestic content thresholds — starting at 45% in 2025 and rising to 55% after 2029 — add layers of supply chain complexity. Failure to meet these requirements risks disqualification from tax credits, potentially impacting project economics. These requirements are leading companies to develop manufacturing capabilities outside of the foreign entities of concern; however, this shift introduces uncertainty regarding the quality of the manufacturing and sourcing of key equipment for projects.
Supply chain vulnerabilities: Global supply chain disruptions have become a persistent challenge for power generation projects, amid geopolitical tensions, transportation bottlenecks, and fluctuating raw material availability. These disruptions can delay the procurement of critical components like turbines, transformers, and solar panels, directly impacting project timelines and increasing costs.
An ongoing talent shortage: The sector is facing a significant shortage of skilled labor, including engineers, technicians, and specialized tradespeople. The talent gap is driven by factors such as an aging workforce, limited new entrants, and competition from other industries. The shortage can delay project schedules, reduce construction quality, and increase labor costs. It can also impact the insurability and bankability of projects in development.
Behind-the-meter (BTM) deployment: As data centers continue to drive significant increases in demand for energy, IPPs are increasingly pursuing BTM projects to avoid interconnection and related development bottlenecks. While this strategy capitalizes on significant opportunities to supply power to these data centers, it also introduces substantial exposures — ranging from transmission and distribution challenges to meeting the energy reliability requirements of the offtakers.

Actionable ways to begin building resilience

Developing resilience in today’s complex energy landscape demands a proactive, multifaceted approach that prioritizes diversification and longevity. The following actions can help you begin creating a more resilient foundation for your organization:

1. Think holistically about risk through the life of the project

Your risk management approach should encompass the full asset lifecycle, beyond the initial development or financing phase. This approach requires a mindset shift focused on long-term thinking, and may include the following actions:

Perform an early project development analysis, including natural catastrophe modeling, reviewing contractual obligations, and equipment viability
Conduct thorough assessments of regulatory risks, including foreign entity involvement restrictions, domestic content requirements, and evolving energy policies
Align project timelines with tax credit eligibility, subsidy programs, and compliance deadlines
Perform regular scenario analyses covering market, operational, financial, and geopolitical risks
Include stress testing for extreme but plausible events such as policy shifts, natural disasters, or supply chain disruptions
Engage legal and risk advisors early to develop integrated risk mitigation strategies and facilitate the implementation of appropriate risk transfer

2. Diversify power generation sources

Diversification across energy sources can help you reduce vulnerability to market fluctuations, regulatory shifts, and project exposures while enhancing the flexibility and reliability of your power supply. By cultivating a balanced portfolio that integrates renewables like solar, wind, and BESS alongside traditional energy generation such as natural gas, you can benefit by:

Reducing your reliance on any one source of generation
Spreading exposures facing your project portfolio, from natural catastrophes to machinery breakdown and long lead times for key equipment
Allowing for broader financing strategies to increase available capital for reinvestment
Opening doors for different offtake opportunities, from regulated utilities to data centers

3. Invest in longevity

IPPs face unique challenges and opportunities in developing, constructing, and operating complex generation assets, such as integrating energy storage and smart grids and complying with evolving environmental standards. Given the dynamic landscape, it has become increasingly important to emphasize asset longevity.

Organizations that invest in project resilience through sourcing proven equipment, integrating loss prevention into project design, and engaging experienced contractors can better position themselves to drive sustainable growth and deliver value to stakeholders.

Proactive risk management as a competitive advantage

IPPs have a crucial role to play in the years ahead, and those that thrive will be the organizations that are proactive, adaptive, and resilience-minded.

By adopting holistic risk management and a long-term strategy, your organization can better mitigate existing risks and seize opportunities at a moment when your capabilities and services have never been more highly sought after.

Article

A changing landscape for independent power producers

A closer look at core challenges

Actionable ways to begin building resilience

Proactive risk management as a competitive advantage

Our people

Katie Burke

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A changing landscape for independent power producers

A closer look at core challenges

Actionable ways to begin building resilience

Proactive risk management as a competitive advantage

To learn more about how to adapt to new energy policies and market dynamics with confidence, speak with a Marsh representative.

Our people

Katie Burke

Related insights

Embracing volatility in the energy and power sector: Four key opportunities

Carbon Capture and Storage

How US LNG is transforming global energy security

How mutuals are responding to 3 key trends in energy and power