On July 3, 2025, the House approved the Senate's legislative text (the "Senate Legislative Version") for the budget reconciliation bill (H.R. 1, the "One Big Beautiful Bill Act") without any changes. Thus, the final provisions as amended by the Senate will become law (the "Final Act"). Our prior Legal Updates, "House Reconciliation Bill Amends Clean Energy Provisions of the IRA" and "United States Senate Finance Committee Makes Changes to Clean Energy Provisions of the Proposed One Big Beautiful Bill", provided a summary and analysis of the House version and Senate Finance Committee version of the legislation. Here, we highlight some of the more significant changes to the clean energy provisions in the Final Act (and the Senate Legislative Version) from both the House version and the Senate Finance Committee version.
The enactment of the many significant changes outlined below will also trigger significant rule making by the Department of the Treasury ("Treasury") and the Internal Revenue Service ("IRS").
Key Changes:
- Solar and Wind (Sections1 45Y and 48E technology-neutral credit): Solar and wind projects that begin construction within 12 months of enactment of the legislation will not be subject to an accelerated placed-in-service deadline. As a practical matter, based on existing IRS guidance that generally requires a project to be placed in service within four full calendar years after the year in which it first begins construction, this means that solar and wind projects that begin construction in 2026 must be placed in service by the end of 2030 in order to claim the credit. For solar and wind projects that do not begin construction within that time frame, the project must be placed in service by the end of 2027 in order to claim the credit. Thus, we would expect significant activity relating to commencement of construction and competition to acquire equipment intended to qualify for the start of construction safe harbors, such as solar modules or main power transformers, with added complexity as a result of the PFE provisions described below. While this extended beginning-of-construction deadline (relative to the Senate Finance Committee version) provides opportunity for developers to implement long-term "beginning of construction" strategies, smaller developers that may not have the capital to engage in these arrangements may not be able to fully take advantage of this window.
- Other Technologies (Sections 45Y and 48E technology-neutral credit): For technologies other than solar and wind, the project must begin construction before 2034 to claim the full credit. The credit phases down in 2034 and 2035, and is eliminated in 2036.
- Advanced Manufacturing Credit (Section 45X PTC): Unlike the Senate Finance Committee version, which eliminated all 45X credit stacking, the Final Act allows stacking but only if (i) the second eligible manufactured component (secondary component) is produced in the same facility as the first eligible manufactured component (primary component), and (ii) at least 65% of the total direct material costs for the secondary component are attributable to primary components which are mined, produced or manufactured in the United States. Consistent with the House and Senate finance versions, the Final Act eliminates eligibility for wind components after 2027, adds a phaseout for critical minerals from 2031-2033, and makes metallurgical coal eligible for a version of the critical mineral credit.
- Prohibited Foreign Entity ("PFE"): The PFE provisions under the Final Act are generally consistent with the PFE provisions under the Senate Finance Committee version. There are two deadlines that are worth noting. First, the restriction on "material assistance" from a PFE (which generally would disallow the tax credit if the project costs attributable to equipment manufactured by a PFE (e.g., solar panels manufactured in China) exceed a certain threshold) does not apply to projects that begin construction prior to the end of 2025. Note that this is less generous than the 12-month grandfathering period for solar and wind projects to begin construction and qualify for the 45Y and 48E credits. Thus, developers that are considering "beginning-of-construction" strategies for solar and wind projects should consider the potential impact of the "material assistance" requirements on their projects and whether to accelerate the beginning of construction before the end of 2025. Note, however, because of the four-year window described above to achieve placement in service, a project that begins construction in 2025 must be placed in service by the end of 2029. Second, subject to Treasury issuing anti-circumvention rules, including potential restrictions on stockpiling and evasive beginning-of-construction strategies, equipment that is purchased pursuant to a binding written contract which was entered into prior to June 16, 2025 is exempt from the "material assistance" requirements, but only if the project is placed in service before January 1, 2030 in a project that began construction before August 1, 2025.
- Solar Residential Leases: The Final Act removes the restriction in the Senate Finance Committee version on solar residential leases. Thus, solar residential leases remain eligible for the 45Y and 48E tax credits.
- Depreciation: The Final Act removes the elimination of MACRS depreciation for solar and wind projects that had been included in the Senate Finance Committee version. Thus, solar and wind projects remain eligible to claim MACRS depreciation.
- Transferability: Under the Final Act, transferability remains in effect except for restrictions on engaging in a transfer of credits to a PFE.
Footnote
1 References to Sections are to sections of the Internal Revenue Code of 1986, as amended unless otherwise specified.
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
