Clean Energy Tax Changes Cut Timelines, Add Red Tape

Originally published in Law360

Significant changes to the Inflation Reduction Act through the One Big Beautiful Bill Act are set to reshape energy project development, financing strategies and long-term investment planning.

Through revised deadlines, restructured tax credits and new foreign entity restrictions, the OBBBA compresses the window for clean energy incentives and introduces heightened compliance burdens.

Project developers must now navigate stricter timelines, reassess supply chains and evaluate which projects remain financially viable in this new environment. This article outlines how these changes affect various technologies, and what developers and investors should be doing now.

What are the most significant changes for energy projects stemming from the revisions to the Inflation Reduction Act?

The most significant change is the imposition of a hard deadline for the IRA's technology-neutral tax credits: the clean energy production credit, under Section 45Y of the Internal Revenue Code, and the clean energy investment credit, under Section 48E.

Under the OBBBA, projects must either begin construction by July 4, 2026, or be placed in service by Dec. 31, 2027, to remain eligible for the tax credits.

This change is particularly consequential for developers in the early planning or permitting stages, many of which may now struggle to meet the accelerated timelines. In addition, their financial models, which were almost certainly based on the IRA's longer-term credits, may not be reliable.

By contrast, projects that are already placed in service and claiming credits under the original IRA rules are generally considered safe.

A second major change involves foreign entity of concern, or FEOC, rules. These rules operate in two key ways: (1) by disqualifying a project if the taxpayer itself is a prohibited foreign entity, and (2) by disqualifying projects based on their supply chains.

Projects beginning construction after Dec. 31 of this year that receive material assistance from prohibited foreign entities — such as those with ties to China, Russia, Iran or North Korea — will be disqualified from receiving the Section 45Y or Section 48E credits.

The definition of "material assistance" can include sourcing of key components, financing or licensing of intellectual property. For example, a solar project that begins construction in January 2026 and sources modules from a Chinese supplier would be ineligible for the tax credits.

The law directs the U.S. Department of the Treasury to issue guidance on how to determine compliance based on cost thresholds, but until then, developers face significant uncertainty in structuring supply chains and financing.

How might the revised tax credit structures influence financing strategies and investment decisions in wind, solar, and battery storage projects?

The compressed window for eligibility will have immediate implications for financing strategies for wind and solar projects. Tax equity investors — already a limited and cautious pool — are likely to narrow their focus to projects that can reasonably begin construction by July 4, 2026.

As a result, developers may need to secure financing earlier and at higher premiums, or shift toward alternative capital stacks that include direct equity or state-level incentive programs — i.e., in states with their own energy tax credits.

The loss of long-term certainty will particularly affect merchant projects that depend heavily on the decreasing value of federal credits. Many such projects may be paused, downsized or abandoned altogether, while utility-backed projects with secured offtake may continue — albeit with tighter financial margins.

While the OBBBA creates a compressed timeline for solar and wind projects under Section 45Y and 48E, battery storage projects are somewhat less affected by these timing changes. But they may still be affected by the FEOC supply chain restrictions.

Stand-alone storage projects, or storage projects installed with a wind or solar facility, that begin construction by the end of 2033 will retain full eligibility for the Section 48E investment tax credit, providing a measure of certainty and continuity.

As a result, financing strategies for battery storage may shift dramatically. Instead of a calendar race, financing will now be contingent on a developer's ability to prove a secure, FEOC-compliant supply chain.

In what ways does the budget affect the role of nuclear energy in the U.S. power sector?

The OBBBA leaves the role of nuclear energy in the U.S. power sector largely intact — and comparatively strengthened. While it shortens eligibility for wind and solar tax credits, it preserves full access to the tech-neutral production and investment tax credits, under Sections 45Y and 48E, for nuclear projects beginning construction by the end of 2033.

In addition, the OBBBA creates a new 10% tax credit bonus applicable to the Section 45Y production tax credit for advanced nuclear facilities, based on nuclear-related employment in the applicable metropolitan statistical area.

More significantly, the bill provides a major new financing tool by making income from advanced nuclear facilities eligible for the tax-advantaged master limited partnership structure, providing greater access to public capital markets and potentially reducing financing costs.

As other technologies face compressed credit windows and stricter sourcing rules, nuclear energy now occupies a more stable and advantageous position.

However, the OBBBA also introduces significant new compliance risks for the industry through FEOC restrictions. The zero-emission nuclear production credit, under Section 45U, a key incentive for the existing fleet of nuclear reactors, is now subject to these rules.

A nuclear plant may lose its credit eligibility if its owner is defined as a "specified foreign entity" or a "foreign-influenced entity." The prohibition on specified foreign entities is effective immediately, and the prohibition on foreign-influenced entities begins two years after enactment of the OBBBA — i.e., July 4, 2027.

Since foreign-influenced entity status can be based on ownership, debt or governance, developers and project owners will need time to assess and address potential violations.

How should developers and investors adjust their timelines or strategies in light of the revised credit qualification deadlines?

Developers and investors should triage their portfolios into three groups: (1) the projects in development that are already safe-harbored; (2) the projects that can realistically be accelerated to meet the July 4, 2026, beginning-of-construction deadline; and (3) the projects that cannot meet the deadline.

For projects in the second group, consider how to best allocate resources for supply chain procurement — from non-FEOC sources — and preconstruction activities in order to qualify for the beginning-of-construction deadline.

President Donald Trump, in a July 7 executive order, directed the Treasury Department to — by mid-August — issue new and revised guidance that will "strictly enforce" the termination of the energy credits. As a result, developers and investors should anticipate more stringent requirements for when a project begins construction than those provided in IRS Notices 2018-59 and 2013-29.

For projects in the third group, consider their financial viability without federal credits — and potential penalties from a cancellation or revision of the project's scope.

A top priority for all projects is to audit and potentially restructure supply chains to ensure that their suppliers are compliant with the new FEOC rules, particularly as developers await stricter beginning-of-construction guidance from the Treasury.

How do the new provisions affect financing opportunities and incentives for coal, oil, and gas projects, and what might this mean for the long-term energy investment landscape?

The OBBBA contains several new programs that dispatchable energy producers could take advantage of. For example, one of the new incentives provides 100% bonus depreciation for what it calls "qualified production property" that is placed in service by Dec. 31, 2030, with construction beginning before Jan. 1, 2029.

Property qualifying for this incentive may include factories, processing sites, or utility or refinery infrastructure used in manufacturing, production or refining of tangible personal property such as oil, coal or natural gas. The OBBBA also creates a 2.5% production cost incentive for metallurgical coal produced before Jan. 1, 2030.

In addition, Title V of the OBBBA mandates dozens of new onshore and offshore oil and gas lease sales, directs new coal leasing at temporarily reduced royalty rates, and enhances the Section 45Q tax credit for carbon capture at conventional power plants.

In the near term, these incentives may encourage increased capital flows into brownfield expansions, field redevelopments and midstream upgrades — particularly in states supportive of coal, oil and gas development.

Conclusion

The OBBBA marks a fundamental shift in federal energy policy, moving away from the broad, long-term support for renewables in the IRA toward a more targeted and restrictive framework. For the energy sector, the near-term takeaways are relatively clear.

First, for wind and solar developers, the new deadlines create an urgent need for speed, fundamentally changing how projects are timed and financed. Second, for technologies like battery storage and nuclear, the primary challenge now lies not with the calendar, but with navigating a complex maze of new supply chain restrictions designed to limit foreign influence.

Finally, the OBBBA creates a distinctly more favorable investment landscape for fossil fuel energy, not only by curbing incentives for its renewable competitors but also by providing new, direct financial benefits for oil, gas and coal. The long-term result will be a reshaped energy investment map, with new risks and opportunities for every sector.