‘One Big Beautiful Bill Act’ Signed Into Law and Executive Order With Major Impacts on Clean Energy Tax Credits

On July 4, President Donald Trump signed into law the One Big Beautiful Bill Act (OBBBA), a budget reconciliation package that significantly modifies the clean energy tax credit framework established by the Inflation Reduction Act (IRA). While the OBBBA preserves the availability of certain clean energy incentives, it also accelerates the phaseout of others; introduces new Foreign Entity of Concern (FEOC) restrictions on project ownership, supply chains and tax credit buyers; and codifies long-term policy shifts that will impact renewable energy developers, tax equity investors, tax credit purchasers, lenders and manufacturers.

Below is a summary of the key energy provisions enacted under the OBBBA.

Phaseout of Clean Electricity Tax Credits and Placed-in-Service Deadline for Wind and Solar Projects (Sections 45Y and 48E)

One-Year Safe Harbor: Wind and solar projects that begin construction within 12 months of the OBBBA’s enactment can still qualify for the full technology-neutral clean electricity Production Tax Credit under Section 45Y (CEPTC) and the Investment Tax Credit under Section 48E (CEITC) with no hard placed-in-service deadline. However, any projects that begin construction after December 31, 2025, will still be subject to the FEOC limitations discussed below.

Placed-in-Service Deadline for Wind and Solar Projects: For any wind and solar projects that fall outside of the one-year safe harbor discussed above, the OBBBA shortens the timeline for these projects to qualify for the CEPTC and the CEITC, requiring them to be placed in service by December 31, 2027, in order to qualify for the credits.

Other Technologies Unaffected: Clean electricity projects qualifying for the CEITC using nuclear, hydropower, geothermal or energy storage technologies are not subject to a hard placed-in-service deadline and remain eligible for the full credit value through 2033, with a gradual phasedown in 2034 through 2035. This phasedown is based on the date construction begins, not when the facility is placed in service, which should provide developers with more flexibility with construction timelines.

Fuel Cells: The OBBBA specifically adds fuel cells (as defined in Section 48(c)(1)), which also includes linear generators, as a new identified category of CEITC-eligible technology. Since fuel cells are considered combustion and gasification technology under the CEITC rules, this allows these projects to qualify for the CEITC without needing to meet the lifecycle greenhouse gas emissions requirements. It also provides for a simple flat 30% CEITC without allowing any credit adders.

Domestic Content Adder Fix: The OBBBA also fixes an apparent drafting error made in the IRA that would have increased the qualification threshold up to 55% over time for CEPTC projects but kept the CEITC threshold static at 40%. Under the OBBBA, CEITC projects that began construction prior to June 16, 2025, can still rely on a 40% threshold, but projects that begin construction after that date in 2025 and seek to claim a domestic content adder must meet a domestic content threshold of 45%. After 2025, the threshold is subject to annual increases that match the CEPTC thresholds.

Foreign Entity of Concern Restrictions on Credit Eligibility

The OBBBA imposes new Foreign Entity of Concern (FEOC) restrictions in order for projects to qualify for the clean energy tax credits. In general, no CEPTC or CEITC is allowed if a project is owned or influenced by a Prohibited Foreign Entity of Concern (PFE) or if it relies on significant inputs from such entities. These rules are modeled after the CHIPS Act FEOC standards and operate in two main categories: (1) ownership/control by a PFE and (2) “material assistance” from a PFE.

Ownership or Control by a PFE: OBBBA disqualifies many of the tax credits if a project is owned or controlled (directly or indirectly) by a PFE. In statutory terms, a PFE includes any Specified Foreign Entity (SFE) or Foreign-Influenced Entity (FIE).

SFE: This category covers “foreign entities of concern” as defined in CHIPS Act/NDAA 2021 and similar lists. SFEs include entities on U.S. sanctions or blocked-persons lists (e.g., terrorist organizations, OFAC-designated nationals) and certain Chinese military or forced-labor lists. They also include any entity owned or controlled by, or organized in, a “covered” foreign nation (China, Iran, North Korea, Russia) or by their governments or citizens. For example, a battery manufacturer owned by the Chinese government or individual would be classified as an SFE in this category.

FIE: An FIE is typically a U.S. or noncovered entity that a foreign concern effectively controls. Ownership/control thresholds are used, and an entity becomes an FIE if a single SFE owns at least 25%, multiple SFEs own at least 40% combined, or SFEs hold at least 15% of the entity’s debt. Contractual controls are also taken into account under this category; if in the prior year the entity made a payment to an SFE under an arrangement giving that SFE “effective control” over the project (or over production of key components), the entity is treated as FIE. “Effective control” for this purpose means the SFE has specific authority over project decisions beyond normal commercial rights, such as controlling output, operations, key sourcing or long-term technology licenses/royalties. In short, even indirect foreign influence through governance, financing or contracts can taint an entity as an FIE. Up-the-chain ownership is also scrutinized, and this characterization can flow through parent companies if the threshold tests above are met.

A project owner that is a PFE cannot claim the CEPTC, CEITC, the Section 45X manufacturing credit or other covered credits for any tax year in which it meets those definitions. This PFOC ownership/control ban takes effect for taxable years after enactment (with a brief grace period for FIE status under certain credits).

“Material Assistance” From a PFE: The second category of FEOC restrictions includes the “material assistance” rule, which denies credits if a project receives significant components, materials or other assistance from SFEs. CEITCs, CEPTCs and other applicable provisions are disallowed if the project or facility receives “material assistance” from a prohibited foreign entity. “Material assistance” is defined using quantitative thresholds based on cost inputs and sourcing, with regulations to be issued by Treasury. The FEOC material assistance limitations apply when the ratio of a project’s costs paid to FEOCs divided by the project’s total costs exceeds a designated percentage. The formula rules are modeled after domestic content provisions and include anti-circumvention measures to prevent avoidance through indirect sourcing or restructuring.

Qualified Facilities (CEPTC/CEITC Projects): Must have at least 40% non-FEOC content for projects that begin construction in 2026, rising to 60% for projects starting after 2029.

Energy Storage Technologies: Start at 55% non-FEOC content for projects that begin construction in 2026, rising to 75% for projects beginning of construction after 2029.

Specific Components and Critical Minerals: Specific thresholds apply to certain components sold in a given year. Solar modules must be at least 50% non-FEOC beginning in 2026, rising to 85% by 2030. Inverters, battery components and critical minerals have their own threshold schedules.

If a project or product’s non-FEOC cost ratio falls below the threshold, it is deemed to have received “material assistance” from a prohibited foreign entity and is ineligible for the credit. Notably, this material-sourcing rule applies to facilities beginning construction after 2025 (earlier projects are safe-harbored).

CEITC Recapture Provisions for FEOC Noncompliance: In addition to the above restrictions, OBBBA added new recapture rules for CEITCs to claw back credits if a project later becomes noncompliant with the FEOC conditions. In particular, if a facility that claimed the CEITC subsequently comes under foreign entity control or sourcing influence, prior credits may be partly or fully recaptured. If a project is transferred or sold in a transaction that results in a PFE becoming an owner, that change in ownership would presumably disqualify the credits and require recapture of the CEITC claimed.

Transferability of Tax Credits Preserved (Section 6418)

The OBBBA retains transferability of clean energy tax credits added by the IRA under Section 6418. As enacted, Section 6418 allows eligible entities to elect to transfer all or a portion of certain energy tax credits to unrelated parties in a sale transaction. The intent behind the provision was to create liquidity and expanded access to tax equity financing for clean energy projects. Under the OBBBA, eligible credits, including the CEPTC, CEITC, PTC, ITC and other IRA-enacted credits, may continue to be transferred to unrelated parties in exchange for cash. The OBBBA also extends transferability to the small agri-biodiesel producer credit under Section 40A(b)(4), which may now be transferred for taxable years beginning before January 1, 2027.

New FEOC Restriction: Transferees (tax credit buyers) are prohibited from claiming any transferred credits if they themselves are PFEs or receive “material assistance” from such entities in connection with the credit-generating activity.

Leasing and Structuring Restrictions for Residential Wind and Solar Water Heating Property

The OBBBA imposes a new restriction on CEPTC and CEITC eligibility for residential wind and solar water heating projects that are financed through leasing arrangements in the residential sector for any taxable year beginning after enactment. In practical terms, this means no federal credit can be claimed for a system that is owned by a company and leased to a homeowner or business user, a structure that often allows the lessor company to claim or monetize the CEITC while providing the customer the benefits of the offtake from a system. Earlier drafts of the OBBBA included a broader leasing restriction that also applied to residential rooftop solar systems, but the final version of the bill only focuses the leasing restriction on solar water heating property or small wind energy property.

This new leasing restriction likely only applies to on-site residential energy property and therefore the restriction would not apply to commercial-scale leasing, community solar models or utility-scale projects.

Treatment of Advanced Manufacturing, Clean Fuels and Hydrogen Credits

The OBBBA modifies the scope and timeline of several other IRA energy tax credits:

Section 45X — Advanced Manufacturing Production Credit: The Section 45X Credit remains available for eligible components as defined under the IRA. Wind components (e.g., turbine blades, towers, nacelles) are removed from the list of eligible components after December 31, 2027. Critical minerals remain eligible, but gradually phaseout starting in 2031 through 2032. Starting after December 31, 2026, eligible components must have been integrated into another eligible component within the same facility, then be sold to an unrelated person and have more than 65% of total direct domestic costs to be eligible for the credit. The OBBBA creates a new category of eligible critical minerals for “metallurgical coal” and, unlike for other eligible critical minerals, specifically allows for metallurgical coal to be produced outside of the United States to qualify for the credit. The OBBBA also now requires battery modules to be “comprised of all other essential equipment needed for battery functionality, such as current collector assemblies and voltage sense harnesses, or any other essential energy collection equipment,” to be eligible for the credit.

Section 45Z — Clean Fuel Production Credit: The Section 45Z Credit is extended through December 31, 2029 (two-year extension beyond the IRA sunset). Credit rates will remain based on life-cycle emissions and carbon intensity thresholds.

Section 45V — Clean Hydrogen Production Credit: The Section 45V Credit will still be available to facilities that begin construction by December 31, 2027. The OBBBA maintains the same four-tiered emissions-based rate structure originally enacted under the IRA.

Section 45Q — Carbon Capture Credit: The Section 45Q Credit retains its original sunset date as provided for in the IRA.

Section 45U — Nuclear Credit: The Section 45U Credit, the production tax credit for nuclear facilities, retains its original sunset date as provided for in the IRA, but will become subject to the FEOC ownership restrictions discussed above.

Executive Order on Beginning of Construction

On July 7, President Trump issued an executive order titled “Ending Market-Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources,” directing federal agencies to enforce stricter standards for clean energy tax credits under the OBBBA. The executive order instructs the Treasury to issue new or revised guidance within 45 days (by August 18, 2025) to clarify the “beginning-of-construction” standard under CEPTC and CEITC. The executive order states that this guidance must prevent artificial acceleration of construction start dates by requiring that a “substantial portion” of a wind or solar facility has actually been built before safe harbor provisions can be invoked.

The Treasury is also tasked with promptly implementing the enhanced FEOC restrictions established by the OBBBA to ensure FEOC ownership/control and material assistance restrictions are implemented within the compliance timeframe.

Key Takeaways

The OBBBA preserves a significant portion of the IRA’s clean energy tax architecture but imposes key limitations and new diligence obligations for developers, investors, lenders and credit buyers. In particular:

• Sponsors and tax equity investors should assess whether projects can begin construction within the 12-month safe harbor to preserve full credit eligibility for wind and solar projects.
• For wind and solar projects that will not begin construction prior to 2026, consider the impact of the risk that the project may not be placed in service by December 31, 2027.
• The impact of the executive order on beginning of construction remains to be seen as to how resulting guidance might tighten up the current “beginning of construction” rules.
• Sponsors, tax equity providers and credit buyers should develop compliance protocols to ensure they do not run afoul of the new FEOC restrictions embedded in Section 6418 transfers.
• Manufacturers and fuel producers should take note of the adjusted timelines for Section 45X and 45Z eligibility and begin planning for sunset or phaseout risk.
• All project stakeholders should monitor Treasury and IRS guidance implementing the new rules, particularly as it relates to foreign entity definitions, material assistance thresholds and anti-abuse standards.