Tech-neutral credits
Solar and wind take a hit
Solar and wind projects which begin construction in 2025 and beyond are heavily impacted by the OBBBA. Under pre-OBBBA law, projects which begin construction after 2024 would be eligible for the clean energy production tax credit under section 45Y and the clean energy investment tax credit under section 48E (Tech-Neutral Tax Credits). Projects would need to be placed in service within four years and may be subject to phasedown of the Tech-Neutral Tax Credits no sooner than 2033.
Under the Act, solar and wind projects are subject to much shorter phasedown timelines and placed-in-service deadlines. Now, a project must begin construction before July 5, 2026 in order to benefit from the more generous four-year placement-in-service timeline. Otherwise, the project must be placed-in-service no later than December 31, 2027.
Storage and other technologies fare better
Projects which rely on technology other than solar and wind are less severely impacted. The phasedown schedule of the Tech-Neutral Tax Credits for these technologies begin for projects whose construction begins after 2033 much as they did before the OBBBA. Projects beginning construction in 2034 may continue to qualify for tax credits, but those credits will be reduced by 25%. Likewise, projects which begin construction in 2035 may qualify with a 50% reduction. However, projects which begin construction any year thereafter do not have applicable tax credits. As under the pre-OBBBA law, these projects must be placed in service within four years of the taxable year in which their construction begins. This requirement could be subject to change pending future updates to IRS guidance.
Clean fuels and carbon capture and sequestration fare well
The Act modifies in part, but otherwise preserves and extends the section 45Z PTC for clean transportation fuel. First, the credit may be claimed for fuel production and sale for an additional two years through December 31, 2029. Second, the adder for sustainable aviation fuel (SAF) is removed; SAF are no longer entitled to the USD 1.75/gallon base rate and all clean transportation fuels have a base rate of USD 1.00/gallon (adjusted for inflation). Third, fuel feedstocks are limited to sourcing from the United States, Mexico, and Canada. Fourth, the Act removes the ability to double-count section 45Z-eligible fuels used as inputs to produce another section 45Z-eligible fuel.
The Act enhances the credit under section 45Q for carbon capture, utilization and sequestration (CCUS). Generally, this credit is available for carbon dioxide which is captured and then permanently sequestered or used in enhanced oil recovery or some other commercial use. Pre-OBBBA, the rate of the section 45Q tax credit was different for carbon dioxide that was sequestered (higher) than carbon dioxide that was put to a commercial use (lower). Ostensibly, this recognized that carbon dioxide that was put to a commercial use was otherwise compensated by the market. Under the Act, if the carbon dioxide is sequestered to put to a commercial use, the section 45Q tax credit is up to USD 85 per metric ton, increasing to USD 180 per metric ton for direct air capture.
Fuel cells are a winner
The Act now allows projects which use fuel cells to qualify for the Tech-Neutral Tax Credits. Fuel cells were previously eligible for the investment tax credit under section 48; however, fuel cells generally emit a nonzero amount of greenhouse gases and were therefore excluded from eligibility for the Tech-Neutral Tax Credits. Now, fuel cell projects which begin construction after 2025 are eligible for the Tech-Neutral Tax Credits, though not the domestic content or energy community adders. Moreover, fuel cell projects are eligible without needing to satisfy the prevailing wage and apprenticeship requirements (PWA).
Advanced manufacturing production tax credit
The Act makes many changes to the broad scope of advanced manufacturing tax credits (AMPTC) available under section 45X for the production and sale of eligible components and critical minerals. Like with the Tech-Neutral Tax Credits, AMPTCs for the production and sale of wind components are particularly curtailed. The AMPTCs for critical minerals are largely preserved and a new category for "metallurgical coal" is added.
Going forward, the AMPTC for wind components terminates for wind components sold after 2027. Metallurgical coal produced and sold before 2030 is eligible for an AMPTC of 2.5% of its production costs. Other critical minerals sold by 2033 remain eligible for the 10% AMPTC. Battery modules must now be comprised of all essential equipment needed for functionality in order to qualify for the AMPTC.
Foreign entities of concern
The Act imposes strict rules restricting the ownership and economic relationships that a taxpayer may have with certain foreign entities of concern (FEOC) while claiming tax credits with respect to projects. The restrictions fall into two categories: (1) taxpayers owned or controlled by FEOCs (Ownership Restrictions); and (2) taxpayers who receive material assistance from FEOCs in constructing a project or producing some tax-credit-eligible item (Material Assistance Restrictions). The Ownership Restrictions in turn apply if the taxpayer is a specified foreign entity (SFE) or a foreign-influenced entity (FIE).
Principally, these SFEs are entities organized in China or otherwise connected through ownership to a Chinese entity or person; however, Russian, North Korean, and Iranian entities are also included within the definition. FIEs are generally entities subject to economic controls by SFEs. An entity is an FIE if:
- An SFE has direct or indirect authority to appoint board members or certain officers;
- A single SFE owns at least 25% of the entity;
- A group of SFEs in aggregate own 40% of the entity; or
- A group of SFEs in aggregate own at least 15% of the debt of the entity.
An entity is also an FIE if the entity made payments to an SFE pursuant to an arrangement which allowed the SFE to exercise control over a project or production of items eligible for tax credits.
The Material Assistance Restriction limits the amount of inputs to the construction of a project or production of items eligible for tax credits that may come from an SFE to a threshold amount. The amounts vary by type of tax credit and become more restrictive over time.
We will be publishing a more in-depth piece on the FEOC rules, however, for now we note that the Ownership Restrictions generally apply for tax years beginning after July 4, 2025, but the Material Assistance Restrictions apply to the Tech-Neutral Tax Credits and AMPTCs for eligible components (not critical minerals) beginning in 2026.
President Trump's July 7 executive order
In the wake of the Act, President Donald Trump issued an executive order ("EO") on July 7, 2025, regarding "Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources." Among other things, the EO directs Treasury to issue guidance to address certain issues regarding the beginning of construction and the new FEOC restrictions.
Specifically, the EO calls on Treasury to issue new and revised guidance to "ensure that policies concerning the 'beginning of construction' are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built." This directive in the EO is made within the context of the termination of the Tech-Neutral Tax Credits with respect to solar and wind projects. With that context, many advisors and participants in the industry construe this potential change in the beginning of construction rules to be limited to solar and wind projects. However, this presumption by the market may be premature as the EO is not explicit that any new or revised guidance will be so restricted. It remains to be seen whether Treasury will make a special case of solar and wind projects or will make any changes to the guidance broadly applicable to the general concept of beginning construction.
