With the passage of the One Big Beautiful Bill Act (Act) and the related July 7, 2025 executive
order (July 7 EO), the Trump administration moves closer to its goals of moving the US’s energy
portfolio away from renewable energy and storage solutions by, in effect, ending tax credits for
wind and solar energy projects.
Among other provisions, the Act terminates the clean
electricity production tax credit and clean electricity
investment credits for wind and solar facilities starting January
1, 2028. To be eligible for tax credits under the Act, solar and
wind facilities must be placed in service prior to January 1,
2028, or begin construction within 12 months following July
4, 2025, the date of enactment. Importantly, the Act also
requires battery storage technology and renewable energy
facilities, including solar and wind projects, to comply with the
newly applicable enhanced foreign entities of concern (FEOC)
requirements, adds several layers of complexity to such
FEOC analysis which is used to determine tax credit eligibility,
including the introduction of concepts such as “Material
Assistance”, “Specified Foreign Entities”, “Foreign-Controlled
Entity”, “Foreign-Influenced Entity” and “Effective Control”, as
well as adds penalties for misrepresentations of information
related to the FEOC analysis. The enhanced FEOC analysis
will result in an expensive and lengthy due diligence process
for a solar or wind project’s interested parties, especially
considering the provisions of the July 7 EO discussed below
and the current absence of related guidance.
In parallel with the Act, the July 7 EO grants the secretary
of the treasury broad authority to “take all action 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 sections 45Y
[(clean electricity production tax credit)] and 48E [(clean
electricity investment credit)] of the Internal Revenue Code
for wind and solar facilities,” and “take prompt action as the
Secretary of the Treasury deems appropriate and consistent
with applicable law to implement the enhanced Foreign Entity
of Concern restrictions in the One Big Beautiful Bill Act.”
It also instructs the secretary of the interior to “conduct a
review of regulations, guidance, policies and practices under
the Department of the Interior’s jurisdiction to determine
whether [to] provide preferential treatment to wind and solar
facilities in comparison to dispatchable energy sources…
revise any identified regulations, guidance, policies and
practices as appropriate and consistent with applicable law to
eliminate any such preferences for wind and solar facilities.”
Based on the broad drafting of the July 7 EO, the
administration could adopt strict rules that, among other
things, disqualify entire megawatt-sized projects from tax
credit eligibility for the failure of components (regardless of
materiality) to comply with enhanced FEOC requirements, or
adopt guidance that eliminates or substantially limits the safe
harbor provisions of Internal Revenue Service Notice 2013–29
and Internal Revenue Service Notice 2018-59 for determining
when construction has begun on a facility, or fail to timely
adopt guidance at all. Finally, and no less concerning, the
secretary of the interior could seek to revoke or limit permits,
as well as access to land used by such facilities. Any such
measures will add further significant legal and investment
uncertainty.
From an investment perspective, the Act’s amendments
to the internal revenue code coupled with the scope of
the powers granted to the secretary of the treasury and
the secretary of interior by the July 7 EO may have the
practical effect of eliminating the availability of these tax
credits altogether. As a result, investment in America’s
energy portfolio may be stifled if the renewable energy
sector becomes too risky or unattractive because the
receipt or availability of tax credits cannot be confirmed
even by seasoned attorneys and tax experts. Moreover, the
complexity of compliance with enhanced FEOC requirements
may also serve to dissuade investment in these projects
entirely. If investors cannot assume value for such tax
credits and perceive material risk associated with enhanced
FEOC compliance, it will affect projected rates of return
on investment, and the sector may experience significant
slowdowns. An outsized impact may be felt by businesses
that are not publicly-traded given the Act extends an
important exemption from the myriad FEOC restrictions to
publicly-traded entities that meet a long list of requirements.
What does all this mean for projects that are currently under
construction, or for which development agreements are
currently being negotiated?
First, parties will have to determine whether they can afford
to develop a wind or solar project without relying on tax
credits.
Second, any party seeking tax credits for its wind or solar
project will have to conduct extensive due diligence on its
supply chains to make sure they comply with the new FEOC
restrictions, which will likely require comprehensive analysis
of suppliers’ ownership structures.
Third, parties participating in the development of wind and
solar projects will have to work together to monitor supply
chains more carefully to anticipate cost and schedule impacts.
Moreover, they will have to conduct extensive due diligence
on a project’s existing supply chain and attempt to identify
more than one alternative, each of which will have to comply
with enhanced FEOC requirements.
Lastly, parties participating in the development of wind and
solar projects, including owners and contractors, will have to
be more flexible across the board with respect to risk sharing,
not only with respect to potential increased costs relating
to change of law and impacts to supply chains as a result
thereof, but also with respect to performance schedule and
the potential loss or disqualification of a tax credit.
The administration has made predicting its next moves very
difficult. As a result, parties participating in the development
of wind and solar projects should measure expectations with
respect to a subcontracted party’s willingness or ability to
absorb costs and schedule impacts relating to changes in tax
laws or regulations.
For further guidance, please contact the authors or any other
members of our Energy and Natural Resources Industry
Group or Tax Practice Group.
