2025 Reconciliation Bill: New Renewable Energy Tax Credit Rules

Now that the dust has settled on the 2025 reconciliation bill, it’s time to assess what this legislation really means for renewable energy’s future. The renewable energy industry just received a significant wake-up call. The bill has dramatically reshaped the landscape for wind and solar projects, creating both urgency and substantial challenges ahead. After months of speculation and legislative maneuvering, we now have clarity on what's coming, and the timeline is tighter than most expected.

What we expected vs. what we got

Before the bill’s passage, the federal tax credit landscape for renewable energy was as follows: 

The clean energy investment and production tax credits in the Inflation Reduction Act (IRA) were originally set to last in full for projects that began construction before the end of 2032, with a gradual phase-out afterward. Most industry observers expected these credits to extend into the 2040s, given built-in provisions that would delay the phase-out if emission reduction targets weren't met. These credits applied to technologies including wind, solar, geothermal, nuclear, and hydropower; production and investment tax credits were also available for clean energy manufacturing.

The IRA also had some strings attached to access the maximum amount of tax credit; laborers had to be paid prevailing wages to access meaningful credit amounts. Bonus credits were also available to projects that used domestic materials, were located in communities with historic ties to fossil fuels, or benefited low-income communities or families. Investment was also made simpler by allowing the credits to be directly transferred.  

After the 2024 elections, the industry expected that the new Congress and administration would cut off the credits with an earlier sunset date and add restrictions to prevent benefits from flowing to China. What took the industry by surprise was how aggressive both the phase-out timeline and the foreign involvement restrictions turned out to be in the final bill, and how wind and solar in particular were singled out. 

The new rules: tighter deadlines, stricter requirements

Now here’s where the situation stands now:

Accelerated phase-out for wind and solar

Wind and solar projects now face a harsh deadline: they must either begin construction by July 4, 2026 or be fully operational by December 31, 2027 to qualify for full clean energy tax credits. Other clean energy technologies keep the original 2032 phase-out date, but the safety net provisions that could have extended that timeline are gone.

On Monday, July 7th, the White House released an executive order directing the Treasury Department to issue new guidance within 56 days about how the IRS will determine whether a project has begun construction by July 4th, 2026. Traditionally, developers could claim that they have started construction by either beginning physical work on a project or spending 5% of the project’s total cost. The executive order wants to make this much stricter. It says projects shouldn’t count as having begun construction unless developers have actually build a substantial portion of the facility. 

Foreign entity restrictions

The bill introduces sweeping restrictions on "foreign entities of concern" (FEOCs)— entities connected to China, Iran, Russia, or North Korea. Starting in 2025, these entities can't claim tax credits. More importantly for developers, projects that begin construction after December 31, 2025 can't receive credits if they receive "material assistance" from an FEOC.

The definition of "foreign entity of concern" casts a wide net. It includes any entity where these countries have 25% equity ownership, control 40% or more of debt, or hold board appointment rights. For solar projects, whose supply chains predominantly run through Asia, this creates an immediate compliance challenge. The July 7th executive order also promised new regulations within 45 days to implement these requirements. 

These changes create urgency for clean energy developers

The compressed timeline puts enormous pressure on the industry. Renewable projects, like most infrastructure, are complex endeavors subject to permitting delays, supply chain issues, and interconnection challenges.  Even under the old guidance, many projects still in early development phases are likely to struggle to begin construction within the next year.  The executive order’s promise of tougher rules around what “beginning construction” means only exacerbates these challenges. 

The "placed in service by 2027" alternative offers little comfort to developers. The delays mentioned above can hit a project at any stage, pushing completion dates out by months or years. This is why locking in eligibility for a tax credit at the beginning of construction has traditionally been very important. Banks and investors understand this uncertainty, making it difficult to secure financing based solely on a completion deadline.

But that’s not all. The FEOC restrictions will be a major hurdle for solar projects.  Few solar projects have been able to access the bonus credit for domestic materials due to China’s dominance in panel manufacturing.  Avoiding China in a project’s supply chain will soon be required to receive tax credits, not optional. The bonus and manufacturing tax credits in the IRA were designed to bring much of clean energy manufacturing back to the US, but it will still be several years before the capacity fully comes online. Given how complex the rules are, even projects that comply may have trouble proving it to investors and auditors. 

One bright spot for developers in the near term: they can avoid the FEOC restrictions on supply by beginning construction by the end of the year and the bill specifically tells the IRS to look at existing guidance when evaluating whether a project has met that safe harbor. 

What happens next?

So where does this leave us? We're heading into a period of intense market activity followed by potential contraction. Expect a flurry of construction starts as developers race even before the July 2026 deadline. Projects that can begin construction soon have strong incentives to move quickly: 

• Regulatory uncertainty: The new executive order signals that beginning of construction rules will get tighter before the end of summer. Developers may wait for this guidance and then rush, or try to start before the guidance is released, making a reasonable gamble that it won’t be retroactive.

• Tariff threats: New "Liberation Day" tariffs could disrupt supply chains exactly when developers need to secure materials.
• FEOC compliance: Starting before December 2025 avoids the FEOC restrictions on supply.

After this initial rush, the industry will face a challenging transition period. Many projects that can't meet the accelerated deadlines will be cancelled or delayed. The country's rapidly growing electricity demands, driven partly by AI and data centers, ensure a continued need for new generation. But it means a fundamental shift in how projects get built and funded.

The window is closing fast

For companies buying renewable energy, this creates both opportunity and risk. Companies looking to meet climate goals at reasonable costs should move quickly to secure long-term power purchase agreements. Those who wait may face:

• Fewer available projects
• Higher prices as competition intensifies
• Reduced options as developers focus on projects that can meet the tight deadlines

Looking ahead

The renewable energy industry has faced policy uncertainty before and adapted. This time will be no different. What's clear is that the next months will be pivotal. Projects that can navigate the compressed timeline and new compliance requirements will have significant advantages. Those that can't will need to find new pathways forward in a post-tax credit world.

The energy transition continues, but the rules of the game have fundamentally changed. Success now depends on speed, adaptability, and the ability to operate in a more complex regulatory environment.