- Wind and solar projects placed in service after 2027 would not be eligible for the clean electricity production or investment credit unless construction starts within one year of the date of enactment of the legislation.
- The final legislation drops a widely criticized proposed excise tax of up to 50% for wind and 30% for solar for violation of the material assistance cost ratio with respect to materials obtained from prohibited foreign entities.
- For purposes of the zero-emission nuclear power production credit (IRC § 45U), a proposed prohibition on the use of nuclear fuel sourced from China, Russia, Iran or North Korea also was removed in the final legislation.
On July 3, 2025, Congress approved passage of the Big, Beautiful Bill (the “Bill” or “BBB”), with a number of provisions that will significantly impact the future of the renewable energy tax credits enacted by the Inflation Reduction Act of 2022 (IRA). President Trump is expected to sign the BBB into law tomorrow, July 4, 2025. A prior client alert discussed the differences between the Senate Finance Committee (SFC) version of the Bill initially released on June 16, 2025, and the version approved by the House of Representatives on May 22, 2025. A later client alert highlighted several changes in the version of the Bill that was advanced to the full Senate. In the discussion below, we provide some observations as to latest developments from the negotiation process for the BBB.
Wind and Solar Projects. The evolution of the BBB included different approaches to termination of the clean electricity tax credits (IRC §§ 45Y and 48E), particularly as relates to wind and solar projects. As finally approved by Congress, the clean electricity tax credits generally would be unavailable for wind and solar projects placed in service after December 31, 2027. Based on late edits to the legislative text, however, a grandfather rule would preserve eligibility of the credits for wind and solar projects that start construction before the date that is 12 months following enactment of the Bill. Eligibility for the credits for other projects will begin to phase out after 2032.
Imported Nuclear Fuel. An earlier Senate version of the BBB would have denied the zero-emission nuclear power production credit under IRC § 45U if nuclear fuel imported from China, Russia, Iran or North Korea was used for electricity production from a facility (subject to an exception for binding contracts in effect before January 1, 2023). Such prohibition represented an extension of the various foreign entity of concern (FEOC) restrictions imposed on renewable energy projects under the BBB. While the FEOC restrictions largely remain intact in the final version of the BBB, the prohibition of use of imported nuclear fuel under IRC § 45U has been removed.
New Excise Tax. A surprise addition to the earlier Senate version of the BBB was a new excise tax applicable to wind and solar projects that violate the material assistance rules, which generally are intended to limit the use of materials obtained from persons or entities with ties to China, Russia, Iran or North Korea (“prohibited foreign entities”). Very generally, prohibited foreign entities include “specified foreign entities” (SPEs) and “foreign influence entities” (FIEs), with a SPE including a foreign entity of concern or other entity or person with ties to Russia, China, Iran and North Korea, and a FIE generally including (i) an entity in which SPEs hold significant ownership interests or possess the ability to appoint directors or key executives or (ii) an entity that made certain sizable payments to SPEs during the previous taxable year. As drafted, the new tax would have been imposed on project equipment based on the degree to which a project exceeds material assistance cost ratios for materials sourced from prohibited foreign entities, up to 50% for wind projects and 30% for solar projects, and would have applied to wind and solar projects which either (i) begin construction after December 31, 2027, and before January 1, 2036, or (ii) begin construction after the date of enactment and before January 1, 2028, and are placed in service after December 31, 2027. The excise tax proposal, described by industry participants as potentially being the death knell for wind and solar projects, was excluded from the final version of the BBB.
Renewable Fuel. The BBB contains several key changes to the clean fuel production credit under IRC § 45Z, which provides a tax credit for the production of low-carbon-intensity transportation fuels. Most notably, the BBB extends the IRC § 45Z credit through the end of 2029. (The credit was originally due to expire in 2027.) Beginning in 2026, IRC § 45Z will only be available for fuel produced from feedstocks produced in the United States, Mexico and Canada. The BBB now caps the value of the IRC § 45Z credit at $1.00 per gallon (including for sustainable aviation fuel) except in the case of fuel produced from animal manure (e.g., renewable natural gas) for which the Treasury may provide for a credit value in excess of $1.00 per gallon depending upon the emissions rate of the fuel. These changes provide some additional stability for the renewable fuels market generally but will cause some disruption in the sustainable aviation fuel and imported feedstock markets.
Hydrogen. The BBB sunsets the clean hydrogen production credit under IRC § 45V for hydrogen projects that have not yet commenced by December 31, 2027. This is five years earlier than had been originally provided under the IRA.
The table below summarizes the most significant changes to key renewable energy tax credits under the BBB (click here to view the full table).
We will be issuing additional alerts on other elements of the One, Big, Beautiful Bill in the days to come.
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