The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces targeted modifications and clarifications to the clean energy incentive landscape in America. This landmark legislation rescinds certain appropriated funds from previous acts, adjusts the availability of some energy tax credits, and introduces new restrictions related to foreign entities, thereby reshaping aspects of how taxpayers access renewable energy incentives.
Summary – OBBBA Changes Clean Energy Credits and Incentives
Under the OBBBA, clean energy tax credits are subject to specific adjustments rather than broad elimination or accelerated phase-outs of all incentives. The legislation modifies the availability of the technology-neutral Investment Tax Credit (ITC) under Section 48E and Production Tax Credit (PTC) under Section 45Y for solar and wind facility projects placed in service after December 31, 2027. However, projects that begin construction within 12 months of the OBBBA’s passage (i.e., by July 4, 2026) are generally exempt from this change. This allows a window for projects to secure eligibility under the prior framework. Specific baseload power sources, such as nuclear, hydropower, geothermal, and battery storage, are also anticipated to have extended eligibility beyond the 2027 deadline.
Residential energy tax credits, including the Section 25C energy-efficient home improvement credit and Section 25D residential clean energy credit, are subject to sunset provisions under the OBBBA, with a general phase-out for properties placed in service or expenditures made after December 31, 2025, unless specifically extended or modified. Electric vehicle credits, including Section 30D for new clean vehicles and Section 25E for used vehicles, are adjusted under the OBBBA. Buyers will need to acquire those vehicles by Sept. 30, 2025, to remain eligible. Manufacturing credits largely remain, but they now incorporate new prohibitions on foreign entities and modified eligibility criteria, adding complexity for businesses involved in credit forecasting.
The OBBBA maintains transferability provisions and direct pay options for eligible entities, preserving essential market mechanisms for credit monetization. However, the introduction of restrictions on prohibited foreign entities creates new compliance burdens that global project developers must carefully navigate.
Changes to Investment Tax Credit and Production Tax Credit
The OBBBA adjusts the cornerstone energy tax credits that have supported the expansion of renewable energy. The dual-rate structure tied to prevailing wage and apprenticeship requirements for many energy credits would generally be retained under the OBBBA. While the general rule for termination of ITC and PTC benefits is for projects placed in service after December 31, 2027, projects that commence construction by July 4, 2026, are grandfathered for eligibility under the previous rules.
Wind and solar energy projects that commence construction after July 4, 2026, but before the end of 2027, must be placed in service by the 2027 deadline to retain ITC and PTC benefits. Projects that commenced construction before July 4, 2026, maintain their credit eligibility under grandfathering provisions.
Nuclear, geothermal, hydropower, and energy storage technologies generally maintain their incentive pathways, with extended eligibility periods beyond 2027, recognizing their baseload or grid-stabilizing characteristics. The legislation preserves existing energy community bonus credits and domestic content bonuses for qualifying projects. It expands the definition of “energy communities” to include new nuclear energy communities, broadening geographic eligibility for enhanced credit rates.
Modifications to Clean Fuels Tax Credits
Clean fuel production generally maintains robust tax credit support under the OBBBA. The Section 45Z clean fuel production credit remains largely in effect, supporting producers of sustainable aviation fuel, biodiesel, and renewable diesel.
Blending requirements and lifecycle greenhouse gas emission standards remain unchanged for clean fuel credits. Producers must still demonstrate a 50% reduction in lifecycle emissions compared to petroleum baselines to qualify for maximum credit amounts.
Co-processing facilities maintain eligibility for clean fuel credits when producing qualifying fuels from renewable feedstocks. The OBBBA preserves the credit’s scalability based on emission reduction percentages. This allows producers to claim proportional benefits for partial emission reductions.
Manufacturer Credits Under the OBBBA
Manufacturing incentives largely survive the OBBBA but face significant modifications. The Section 45X advanced manufacturing production credit continues to support domestic clean energy component production, albeit with new restrictions related to foreign entities.
Wind component manufacturing generally retains Section 45X eligibility, but with heightened scrutiny regarding supply chains. Solar manufacturing equipment maintains eligibility, supporting the continued development of domestic production capacity.
Critical minerals receive expanded coverage under modified Section 45X rules. Notably, the OBBBA introduces a new 2.5% tax credit for metallurgical coal production, effective for production after December 31, 2024, reflecting strategic material security priorities. This is a separate credit, not an inclusion of metallurgical coal within the existing critical minerals list for 45X.
Integrated component rules under the OBBBA are refined, with a focus on ensuring domestic manufacturing benefits. While specific thresholds are still being clarified, the intent is to prevent the credit from being claimed for components where most of the value is derived from foreign sources.
Increased and Bonus Credit Amounts
Prevailing wage and apprenticeship bonus structures generally remain intact under the OBBBA for qualifying projects. Projects meeting labor standards continue to access quintupled credit amounts compared to base rates, maintaining incentives for high-quality employment practices.
Energy community bonuses expand to include new nuclear energy communities, broadening geographic eligibility for enhanced credit rates. Coal closure communities, brownfield sites, and statistical areas dependent on fossil fuel industries retain their access to bonus credits.
Domestic content bonuses continue to reward projects that use American-made components, although verification requirements may become more stringent. The energy community and domestic content bonus credits largely remain consistent with prior law, with the notable addition of new nuclear energy communities to the energy community bonus credit rules.
Prohibited Foreign Entities
Foreign entity restrictions represent a complex new compliance requirement under the OBBBA. The OBBBA generally prohibits taxpayers from claiming certain energy credits, specifically sections 45X, 45Y, and 48E, if they receive material assistance from or have certain ties to “prohibited foreign entities,” including those from China, Russia, North Korea, or Iran.
These restrictions apply to taxable years beginning after July 4, 2025, creating immediate compliance obligations for affected taxpayers. Manufacturing credits face particular scrutiny, with Section 45X prohibiting credits for taxpayers receiving material assistance from prohibited foreign entities.
Organizational structure reviews have become essential for multinational clean energy companies. Direct and indirect ownership relationships require careful analysis to determine the levels of foreign entity influence that might disqualify projects from credit eligibility.
Material assistance definitions encompass financial support, technology transfers, and operational partnerships with entities that are prohibited from receiving such assistance. Credit transferability restrictions may extend these prohibitions to credit purchasers, requiring enhanced due diligence in credit markets.
Residential Energy Credits Adjustments
Homeowners will see adjustments to residential energy tax credits under the OBBBA. The Section 25C energy-efficient home improvement credit and Section 25D residential clean energy credit are now scheduled to phase out for properties placed in service or expenditures made after June 30, 2026, unless further legislative action is taken. This provides a longer window of eligibility than previously stated, but still signifies a sunset.
Electric vehicle charging infrastructure for homes, under Section 30C, is generally extended until June 30, 2026. This will provide continued federal support for residential charging installations.
Geothermal heat pump installations, along with other residential renewable energy systems, will be affected by the general phase-out of Sections 25C and 25D.
Electric Vehicle Credit Adjustments
Electric vehicle incentives under the OBBBA undergo revisions, with new deadlines for qualifying purchases for Section 30D new clean vehicle credits and Section 25E used vehicle credits generally set for vehicles acquired after September 30, 2025.
Commercial electric vehicle credits under Section 45W generally follow similar timelines for business purchasers, with revised acquisition deadlines.
Point-of-sale rebate systems established under the Inflation Reduction Act will continue to operate until the revised deadlines, providing immediate access to credit for qualifying vehicle purchases. Dealer participation requirements remain unchanged during the transition period.
Income limitations and vehicle price caps remain in effect for qualifying purchases made before the termination date. MSRP restrictions of $55,000 for cars and $80,000 for trucks, vans, and SUVs will continue to apply to credit-eligible vehicles acquired within the revised eligibility period.
Section 48C Advanced Energy Project Credit Changes
The Section 48C qualifying advanced energy project credit program faces funding modifications. The OBBBA rescinds some unallocated funding from the Inflation Reduction Act’s appropriation for this program. However, it does not explicitly prevent future application rounds if additional funds are appropriated or existing certifications are revoked and reallocated.
Existing credit allocation holders retain their incentives, provided they meet the program’s compliance requirements. Projects that received allocations in previous rounds can proceed with their planned investments and credit claims.
The OBBBA’s rescissions aim to reduce overall spending, but the impact of these rescissions on the 48C program’s future funding availability depends on specific statutory language and subsequent administrative decisions.
Manufacturing, recycling, and energy storage projects with existing allocations must meet place-in-service deadlines to retain their credit eligibility. Project developers should prioritize construction timelines to avoid having their certifications revoked due to non-compliance with program requirements.
Implications for Taxpayers with Clean Energy Projects
Project developers face adjusted construction timelines and enhanced compliance requirements under the OBBBA’s modified incentive structure. While the credits were not repealed entirely or retroactively, taxpayers will need to consider their ability to satisfy the new phase-out and eligibility requirements. Otherwise, they risk losing anticipated credits.
Wind and solar developers with projects in earlier stages may benefit from the grandfathering provisions for construction commenced by July 4, 2026. However, new projects must now account for the 2027 placed-in-service deadline for the general ITC/PTC.
Foreign entity compliance reviews require immediate attention for multinational project developers. Careful review of organizational charts and other records will be critical post-OBBBA to avoid credit disqualification through prohibited entity relationships.
Credit transferability markets may experience shifts in supply and demand as eligibility criteria change for certain projects. Changes to the transferable credits could impact the transferable credit market, potentially affecting credit pricing and availability.
Tax compliance becomes increasingly complex with heightened IRS scrutiny anticipated. Additional IRS scrutiny of claimed clean energy credits may lead to increased examinations under the current administration. This will require robust documentation and compliance procedures.
Surviving incentive categories, including clean fuels, nuclear, geothermal, and energy storage, continue to offer pathways for project development, some with extended or clarified eligibility under the OBBBA. Strategic pivots toward these technologies may help developers maintain access to federal tax incentives despite the broader legislative adjustments.
The OBBBA preserves direct pay options for tax-exempt entities and transferability mechanisms for eligible projects. This maintains some market liquidity for credit monetization. However, the specific changes to eligibility and the introduction of new compliance requirements fundamentally alter aspects of the clean energy investment landscape moving forward.
Get Expert Help Navigating OBBBA Changes
The complex changes to energy tax credits under the OBBBA require careful planning and expert guidance. Windes’ experienced energy industry tax professionals help clients maximize remaining incentives while ensuring compliance with new foreign entity restrictions and accelerated phase-out timelines. Contact Windes today to develop a strategic approach for your clean energy projects under the new tax landscape.