One Big Beautiful Bill: Final Impact Analysis on IRA Clean Energy Tax Credits

Overview of Clean Energy Tax Credit Impacts

While the bill preserves certain aspects of the Inflation Reduction Act's (IRA) clean energy incentives, it introduces substantial restrictions, accelerated deadlines, and complex foreign entity requirements that will reshape the renewable energy landscape. 

The most significant changes include:

• Severe restrictions on wind and solar projects through accelerated placed-in-service deadlines to qualify for tax credits
• Comprehensive Foreign Entity of Concern (FEOC) regulatory framework  affecting most clean energy tax credits
• Introduction of material assistance thresholds for projects using foreign equipment
• Termination of consumer-facing credits for EVs and residential renewable energy
• Extension of certain credits like clean fuel production (45Z) with modifications

Key Construction and Placed-in-Service Deadlines

Solar and Wind Projects Now Face a Tight Timeline

The OBBBA creates a critical deadline structure for solar and wind facilities claiming technology-neutral tax credits under sections 45Y and 48E:

Projects must be placed in service by December 31, 2027, unless construction begins before July 4, 2026 (within 12 months of the bill's enactment). This creates two pathways:

1. Fast Track: Begin construction by July 4, 2026, and maintain the traditional four-year safe harbor to complete construction (through 2030 for projects starting construction in the first half of 2026)
2. Deadline Track: Begin construction after July 4, 2026, and race to complete the project by December 31, 2027

Energy storage and other non-solar/wind technologies (geothermal, biomass, hydroelectric) receive more favorable treatment, with the ability to start construction through 2033 at full credit rates, followed by a phase-down period:

• 2034: 75% of full credit
• 2035: 50% of full credit
• After 2035: No credits available

Construction Start Enforcement: Already a target from the White House

A July 7, 2025, Executive Order directed the Treasury Department to issue "new and revised guidance" within 45 days that restricts "broad safe harbors unless a substantial portion of a subject facility has been built." This signals potential tightening of the traditional 5% safe harbor and physical work test that developers have relied upon since 2013.

Foreign Entity of Concern (FEOC) Restrictions

The OBBBA introduces comprehensive FEOC restrictions that create a complex three-step compliance analysis for claiming various tax credits. These restrictions apply to technology-neutral credits (45Y/48E), manufacturing credits (45X), carbon capture (45Q), clean fuel production (45Z), and nuclear power production (45U).

Three-Step FEOC Analysis

Step 1: Material Assistance Test

Projects and products must meet minimum thresholds for non-FEOC content:

NOTE: Projects under construction by December 31, 2025, are exempt from material assistance requirements.

Step 2: Entity-Level Restrictions

"Specified foreign entities" and "foreign-influenced entities" cannot claim credits. These include:

• Companies with >50% ownership by Chinese, Russian, North Korean, or Iranian interests
• Companies where a single covered foreign entity owns ≥25% or multiple covered foreign entities own ≥40%
• Companies where covered foreign entities hold ≥15% of outstanding debt
• Companies where covered foreign entities can appoint board members or executive officers

Step 3: Effective Control Provisions

Contracts and licensing arrangements with foreign entities must avoid provisions that grant "effective control," including:

• Rights to determine production quantity or timing
• Rights to determine customers
• Exclusive maintenance or operation rights
• Royalty payments exceeding 10 years
• Service requirements exceeding 2 years

ITC Recapture Risk

A particularly severe provision creates 100% recapture risk for technology-neutral ITCs if "applicable payments" are made to prohibited foreign entities within 10 years of placing a project in service.

Credit-Specific Changes

Eliminated or Severely Restricted Credits

Consumer Credits Terminated:

• Section 25D (Residential Clean Energy): Expenditure deadline of December 31, 2025
• EV Credits (25E, 30D, 45W): Must acquire vehicles by September 30, 2025
• EV Charging (30C): Must be placed in service by June 30, 2026

‍Hydrogen Production (45V):

• Construction must begin by December 31, 2027 (accelerated from 2032)
• No FEOC restrictions applied

Extended or Modified Credits

Clean Fuel Production (45Z):

• Extended through December 31, 2029 (from 2027)
• Sustainable aviation fuel credit reduced from $1.75 to $1.00/gallon after 2025
• Negative emissions rates prohibited after 2025
• Feedstock must be sourced from US, Mexico, or Canada after 2025

Carbon Capture (45Q):

• Credit rates equalized at $85/ton for all disposal methods
• Extended to industrial facilities placed in service after July 4, 2025
• Subject to FEOC restrictions

Manufacturing (45X):

• Wind equipment credits eliminated for sales after December 31, 2027
• Critical minerals credits phase down 2031-2033
• Metallurgical coal added as eligible mineral through 2029
• Anti-stacking provisions for integrated components

Positive Developments

Despite the restrictions, several provisions benefit the clean energy industry:

1. 100% Bonus Depreciation: Made permanent for property acquired after January 19, 2025 (however, Basis is already seeing that this reduces certain asset-heavy corporate tax credit buyer’s credit appetite)
2. Fuel Cells: Added as qualifying technology for technology-neutral credits
3. Master Limited Partnerships: Expanded qualifying income to include carbon capture, hydrogen storage, and geothermal activities
4. Geothermal Heat Pumps: Resolution of "limited use property" issues for third-party ownership
5. 45Z Extension: Two-year extension provides certainty for renewable natural gas industry
6. Legacy Credits Protected: Projects under construction by end of 2024 remain eligible for sections 45/48 credits without FEOC restrictions

Implementation Challenges and Compliance Considerations

Documentation Requirements

The OBBBA creates extensive documentation burdens:

• Supplier certifications for all manufactured products
• Six-year record retention requirements
• Enhanced penalties for material assistance miscalculations (20% penalty for >1% understatement)
• Extended statute of limitations (six years instead of three)

Guidance Timeline

Treasury must issue critical guidance within tight timeframes:

• 45 days for construction start and FEOC enforcement guidance
• By end of 2026 for material assistance calculation tables
• By end of 2027 for revised critical mineral percentages

Transition Provisions

Limited grandfathering applies to:

• Equipment ordered before June 16, 2025, for projects under construction by July 31, 2025
• Manufacturing inputs purchased before June 16, 2025, and used in products sold by end of 2026

Strategic Implications

The OBBBA fundamentally reshapes clean energy development strategy:

1. Immediate Action Required: Developers must move quickly to begin construction on solar and wind projects before July 4, 2026, to avoid the 2027 placed-in-service deadline
   
   
2. Supply Chain Scrutiny: The FEOC restrictions require unprecedented visibility into equipment supply chains and ownership structures
   
   
3. Technology Pivot: The favorable treatment of storage, geothermal, and other non-solar/wind technologies may shift investment priorities
   
   
4. Compliance Infrastructure: Companies need robust systems to track material assistance percentages, obtain supplier certifications, and monitor counterparty relationships
   
   
5. ITC vs. PTC Decision: The 10-year recapture risk for ITCs may push more projects toward PTCs despite financing preferences
   

In Summary…

The “One Big Beautiful Bill” represents a significant adjustment of federal clean energy policy, and solar and wind industries are taking a significant hit on their ability to leverage these tax credits to support the much-needed expansion of US domestic energy generation. 

While the OBBB preserves the basic structure of technology-neutral tax credits, the introduction of FEOC restrictions, accelerated deadlines for solar and wind, and elimination of consumer incentives creates a more challenging environment for renewable energy development.

Success in this new landscape requires immediate action on project development, sophisticated supply chain management, and careful navigation of the complex FEOC requirements. The clean energy industry must adapt quickly to these changes while awaiting critical Treasury guidance that will shape implementation of these new rules.

We remain positive where possible—the extension of certain credits and resolution of technical issues provides some positive momentum, but the overall impact has a net restriction on government incentives supporting the pace and scope of clean energy deployment (which are notably the quickest to build out), and has particularly for technologies and companies with international supply chains (on which most clean energy developers rely).