As we have discussed in recent articles and as has been well publicized, two recent actions out of Washington are significantly impacting the renewable energy industry. The recently enacted One, Big, Beautiful Bill Act (OBBBA) imposes new deadlines on renewable energy facilities to begin construction and/or be placed into service in order to qualify for tax credits. This is discussed in detail in our recent articles here.
In addition to the OBBBA, on July 7, 2025, President Trump issued an Executive Order (EO), directing the Secretary of Treasury to—within 45 days following enactment of the OBBBA (which is August 18, 2025)—strictly enforce the termination of renewable energy tax credits. This includes issuing new guidance “to ensure that policies concerning the ‘beginning of construction’ are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.”
These two actions out of Washington are driving two significant developments in the renewable energy marketplace. We are seeing a rush to begin construction prior to Treasury’s issuance of new beginning of construction guidance under the EO, which is due by August 18, 2025. We are also seeing pricing uncertainty due to the uncertainty of projects qualifying for tax credits due to the OBBBA and EO.
Rush to Begin Construction
Under existing IRS guidance, there are two methods renewable energy projects use to establish that the project has begun construction: (1) performing physical work of a significant nature, either onsite or offsite or (2) incurring 5% or more of the total cost of the project. Parties have historically employed a variety of practices to meet these standards. The physical work test is sometimes satisfied by significant off-site work on unique equipment for the project, such as electric transformers, inverter skids, and wind turbine nacelles. Parties have also done various on-site work to satisfy the physical work test, such as foundation excavation and wind turbine mud mats, installation of solar piles, and construction of project roads. To satisfy the 5% safe harbor, parties have procured equipment that amounts to 5% of the project costs, such as solar modules, wind turbines and cable.
It is anticipated that the guidance Treasury will issue under the EO will change the requirements for a project to establish that it has begun construction, which could eliminate and/or change some of the methods described above that parties have historically employed. The guidance could impose more stringent, expensive, and resource-consuming requirements.
In light of this looming change in standards, we are seeing a very significant rush to begin construction under existing guidance. Many parties are using a variety of the methods mentioned above to begin construction on projects before August 18, such as beginning work on transformers, inverter skids, turbine nacelles and beginning on-site physical work as much as possible. Resources (equipment, labor and contractors) are limited, so there is certainly a rush to get as much done as possible. We are seeing limited efforts at fast procurement of 5% safe harbor equipment because of timing constraints. Parties instead are working to begin construction as fast as they can using these methods to demonstrate physical work of a significant nature.
The full impact of the EO is not entirely clear. There is very little precedent regarding when notice of an upcoming change in tax guidance or regulations is sufficient to disallow reliance on prior guidance. While most in the industry expect that the guidance will be issued prospectively, it is possible that it could be issued and applied retrospectively from the date of the EO or from the date the OBBB was enacted. Moreover, while the EO provides a general statement about a “substantial portion of a subject facility” being built, there is very little consensus among industry experts on the substantive revisions that are likely to be included in the forthcoming guidance. To mitigate risk during this instability, it is prudent, to the extent possible, to proceed with parallel paths to hedge against guidance that may significantly limit activities to satisfy start of construction, whether in the category of onsite or offsite physical construction or under the 5% safe harbor.
Pricing Uncertainty
Meanwhile, in addition to the rush to begin construction, the uncertainty of tax credit qualification is also causing uncertainty in pricing. This plays out particularly in the projects’ marketing plans, including power purchase agreements (PPA) and project sale agreements, such as build transfer agreements (BTAs). The cost savings from tax credits cause projects to pencil out with lower PPA pricing than projects that are ineligible for tax credits. Likewise, the sales price of projects in development or under BTAs will be significantly impacted depending on if the project is able to qualify for tax credits.
Due to the uncertainty of whether projects will qualify for tax credits—and the already volatile equipment pricing related to tariffs—we are seeing a slowdown in the execution of contracts for the sale and marketing of projects (PPAs, purchase agreements, and BTAs). Parties are negotiating such agreements in search of mutually agreeable paths forward and allocation of risk. However, for the most part, these contracts are not being executed, or are being executed with significant exit ramps, as parties wait and see if more certainty comes for project tax credit qualification. We do not anticipate these pricing dynamics to cause a permanent lull in the successful marketing of renewable energy projects and anticipate a return of activity once there is more certainty on tax credit qualification methods. But for the time being, expect parties to continue to collaborate and negotiate (but not execute, or execute with off ramps) as tax credit qualification uncertainty remains.
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