The One Big Beautiful Bill Act (the "OBBBA") signed by President Trump on July 4, 2025, reflected the administration's policy decision to end incentives for clean and renewable energy enacted in the Inflation Reduction Act (the "IRA") during the previous administration. Tax credits for wind and solar projects in particular will face early termination.
There are two principal credits enacted in the IRA that benefit wind and solar projects – the clean electricity production credit and the clean electricity investment credit. Taxpayers cannot claim both credits for the same facility. Both these credits are transferable, thus allowing developers to monetize the credits to provide funding for projects. As an alternative to transferability, developers may form complex tax equity partnerships to obtain equity investment in return for allocations of credits.
The first principal credit is the clean electricity production credit in Internal Revenue Code ("IRC") Section 45Y. This new credit enacted under the IRA applies for facilities placed in service after December 31, 2024. This is available for electricity produced by the taxpayer at a qualified facility and sold to an unrelated person during the taxable year. The credit is also available where such electricity is consumed or stored by the taxpayer during the taxable year and there is no third-party sale, if the qualified facility is equipped with a metering device owned and operated by an unrelated person. The credit is available for electricity produced during the 10-year period beginning when the qualified facility is originally placed in service. The base credit rate is 0.3 cents per kilowatt-hour. This amount is increased to 1.5 cents per kilowatt-hour for facilities with a maximum output of less than one megawatt of electricity (as measured in alternating current) and for facilities that meet certain prevailing wage and apprenticeship requirements. The credit is increased by 10% for facilities located in energy communities (certain brownfield cites, communities that had significant employment in coal or gas extraction experiencing above average unemployment, or census tracts having closed coal mines or coal fired generating plants and adjoining census tracts to them). Additionally, the credit is increased by 10% if certain domestic content requirements are met. This credit is further adjusted for inflation after 2024. Under the IRA, this credit begins to phase out for projects the construction of which begins after the "applicable year," which is defined as the later of 2032 or the calendar year in which Treasury determines that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022.
The other principal credit enacted by the IRA benefiting wind and solar projects is the clean electricity investment credit in IRC Section 48E. This credit enacted under the IRA applies to facilities placed in service after December 31, 2024. This credit applies to qualified investments for any taxable year with respect to qualified facilities and energy storage technology. The base rate is 6%. This base rate is increased to 30% (the "alternative rate") for facilities with a maximum output of less than one megawatt of electricity (as measured in alternating current) and for facilities that meet certain prevailing wage and apprenticeship requirements (or for which construction began more than 60 days before Treasury publishes guidance with respect to such prevailing wage and apprenticeship requirements). If energy property is placed in service in an "energy community," the provision increases the base rate by two percentage points and the alternative rate by 10 percentage points. An additional credit amount is available for property that meets certain domestic content requirements. This credit was to phase out for projects the construction of which begins after the later of the taxpayer's first taxable year beginning after 2032 or the calendar year in which Treasury determines that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022.
The OBBBA will terminate the production and investment tax credits for wind and solar facilities for which construction has not begun by July 5, 2026 and that are placed in service after December 31, 2027. The credits are terminated earlier for facilities for which construction includes "material assistance" from a "prohibited foreign entity" (both defined terms in the Statute). Those projects do not qualify for credits if construction begins after December 31, 2025. No credit is allowed for taxable years after enactment if the taxpayer claiming the credit is a prohibited foreign entity. The OBBBA also removes the "later of" rule and instead begins the phase-out for projects the construction of which begins after the taxpayer's first taxable year beginning after 2032 for qualified facilities other than wind or solar that generate electricity, such as hydropower, nuclear, and geothermal.
Developers of wind and solar projects may feel urgency to begin construction of contemplated projects before the July 5, 2026 (or December 31, 2025) deadline and to place such projects in service by December 31, 2027, in order to be eligible for the production or investment tax credits under the OBBBA.
However, on Monday, July 7, 2025, President Trump added uncertainty to such plans by issuing an Executive Order directing Treasury within 45 days following enactment of the OBBBA, to take all actions as the Secretary of the Treasury deems necessary and appropriate to strictly enforce the termination of the clean electricity production and investment tax credits under IRC Sections 45Y and 48E for wind and solar facilities, including issuing new and revised guidance to ensure that policies concerning the "beginning of construction" are not circumvented. Two IRS Notices, 2013-29 and 2018-59, had previously provided rules for determining the beginning of construction for applicable tax credits. The OBBBA includes a provision requiring that rules similar to those in the Notices be used to determine when construction begins for purposes of the prohibited foreign entity restrictions. Notwithstanding that language in the Statute, project developers may now need to wait for the new guidance before beginning construction if the project economics are dependent on the availability of tax credits. Investors in transferable credits or tax equity that may be used to provide funding for projects may be unwilling to commit funding until there is more clarity.
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