The One Big Beautiful Bill (OBBB) Act, currently in the Senate, includes detailed provisions that would essentially eliminate or dramatically phase down what historically are the most popular federal income tax credits for clean energy generation. The proposed rollback impacts both consumers and businesses and would include the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) in addition to electric vehicle (EV) credits and EV charging credits, among others.

These proposals come in addition to separate efforts to claw back substantial funding for clean energy projects – including the $20 billion EPA Greenhouse Gas Reduction Fund (GGRF), currently being litigated at the appellate court level – as well as the administration imposing embargoes on permitting and other agency pauses for wind and other energy projects.

Within the month, the Senate is expected to make its own changes to the OBBB, which leaders in the clean energy sector hope will improve the prospects for continued existence of the clean energy and EV credits. In the meantime, those active in the clean energy development and investment sector should be aware of the proposed changes, monitor the legislation for updates, and consider how they might need to adjust for various outcomes.

PTC/ITC

Under the currently proposed OBBB legislation, the PTC (IRC Section 45Y) and ITC (IRC Section 48E) provisions are drafted to essentially expire within the next couple of years, except for projects that meet two requirements: 1) a “beginning of construction” requirement limited to a period of 60 days after the date of enactment, and 2) projects being placed in service no later than Dec. 31, 2028. However, there are other provisions in the House version of the legislation that would impose foreign entity of concern rules (FEOC), and these rules, given their strict operative nature, would make it largely impossible for most clean energy technology investments to be viable, thus effectively killing the PTC and ITC. Additional limits are imposed on tax credit transfers, although none are made to “Direct Pay.” Grandfathering provisions were provided for ground-sourced heat pumps. 

EV credits

Under the House version of the OBBB, EV credits, which are available for the purchase of an EV or for EV charging equipment, would expire by the end of 2025, with a very limited exception for certain vehicle contracts. 

In addition to removing credit opportunities for purchasers, this would have a profound impact on auto dealerships, as it would likely slow the sale of EVs, potentially leaving this inventory sitting in the lots and/or sold at a reduced price, lowering dealership profitability. This would also impact manufacturers of EVs, who could drop production.

Additional provisions: Deductions, residential renewable energy, and what remains

Proposed eliminations/expirations

• Residential renewable energy credits under IRC 25C and 25D are also slated to expire by the end of 2025, as the House effort intentionally most aggressively impacts consumer-level tax incentives for clean energy, including consumer leasing arrangements. The 45L energy credit is also slated to expire this year, with one exception.
• In the area of manufacturing, the 45X credit would be eliminated for wind after 2027 and generally terminated after 2031, with credit transfers limited to 2 years.

What remains supported

• As it relates to energy deductions rather than credits, the 179D deductions were left untouched, and the always popular Bonus Depreciation would be brought back to 100%.
• For those looking to participate in the nuclear power market or carbon capture, the draft legislation from the House specifically supports such efforts (albeit with a shortening of the credit transfer rules), and thus the long-term prospects for such technology appear to remain viable under this administration.  
• The Clean Fuels credit is also extended with modified rules.

What comes next?

Now that the draft final text from the House is in the hands of the Senate, a legislative process called reconciliation will begin. This is a unique legislative procedure that would allow the Senate to pass large legislation of this type through a simple majority vote. 

However, because the parameters of a reconciliation bill are far more limited than the virtually unrestricted parameters the House Republicans chose to apply, it’s expected that the Senate will notably, if not dramatically, alter the House version of the bill. As such, many in the clean energy and EV sectors are hoping that the Senate changes will substantially undo the more restrictive language passed in the House.  

Because of the overall budget deadline looming in August, it’s expected that the Senate should have its version of the legislation containing tax credit provisions sometime in late July, if not by the stated target of the July Fourth Congressional recess. 

What does this mean for developers and investors?

What this all means for tax equity financing, tax credit transfer transactions, clean energy manufacturing, and renewable energy development in America is not yet certain. In the near term, developers and investors are proceeding cautiously, with some taking a “wait and see” approach and others implementing more active responses.

Businesses looking to take a more proactive approach could consider re-examining the efficacy of their “beginning of construction” efforts, as well as evaluating potential changes to transferability plans. Of course, these calculations should also take into account the potential impacts of tariffs and supply chain changes, as well as re-assessments of the possible impacts of interconnection timing and permitting realities. In addition, all these uncertainties have caused some capital providers to also take a “wait and see” approach.

Clearly, and ultimately, any impediments to tax credit availability will have direct impacts on the tax credit finance market. However, several factors should still bode well for the construction of wind, solar, and storage, even in cases where tax credits or tax credit equity might not be operative under the same type of tax policy regime the industry has come to expect in the last few decades:

• Renewable energy, in particular solar and in some cases wind, is still the lowest cost, most readily available to construct energy generation source.
• Gas turbine supply is severely constrained.
• Nuclear power has an extremely long lead time.
• Power utilities will still need to meet projected electric demand even under higher build costs.

CohnReznick’s Renewable Energy team stands ready to help you think through today’s complexities. Reach out to start the conversation.