Key Takeaways

• Significant changes to tax credits could directly impact the financial planning and operational strategies of the solar and renewable energy industries.
• The new legislation introduces complexities around FEOCs, requiring careful review to ensure compliance and mitigate potential risks.
• Solar developers must closely examine the updated Safe Harbor provisions to take advantage of opportunities while navigating associated challenges.
• Advanced manufacturing tax credits face potential reductions, which could disrupt innovation and expansion within the renewable energy sector.
• Despite uncertainties, the evolving renewable energy legislation also presents opportunities for growth and strategic adaptation.

The U.S. Senate is currently reviewing the “One Big Beautiful Bill Act”, which passed through the U.S. House of Representatives on May 22, 2025. If the Bill remains unchanged, the sweeping legislation will drastically reshape how the renewable energy industry approaches tax credits and supply chain planning. Womble Bond Dickinson has previously explored recent federal changes to Biden’s Inflation Reduction Act (IRA). Now, we look into the latest effort to repeal and restrict aspects of the IRA.

There are three key provisions that we are watching: § 45X – the Advanced Manufacturing Production Tax Credit, § 48E – the Clean Electricity Investment Credit, and § 45Y – the Clean Electricity Production Tax Credit. Each of these tax credits have been a large factor in the onshoring and growth of U.S. solar manufacturing, and each will be severely restricted under new legislation if the Senate does not make changes.

Although the Bill passed by the House kept § 45X largely intact, the House included an onerous and confusing Foreign Entities of Concern (FEOC) provision that could dramatically constrain use of the § 45X Advanced Manufacturing Production Tax Credit. The House version of the Bill also includes a similarly deeply granular FEOC provision for § 48E and § 45Y, coupled with a 60-day cut off to “commence construction” in order to maintain eligibility or the tax credits. Together, these changes could cause deep disruptions to the sector.

Within its relevant FEOC provisions, the Bill includes two categories of Prohibited Foreign Entities rules. These rules are generating concern within the industry over potential supply chain disruptions and, should these rules create a barrier to claiming the tax credit, stranded investments. Under the Bill, entities may be categorized as Specified Foreign Entities (SFEs) or Foreign-Influences Entities (FIEs). Too much involvement with either category could render a taxpayer ineligible for the tax credit in certain tax years.

SFEs are owned, controlled by or subject to the jurisdiction of a “foreign entity of concern,” described in 15 U.S.C. § 465. They could also be entities specifically enumerated as threats to national security by federal agencies, as well as entities “controlled by” the above FEOCs. The prohibition goes into effect in the tax year after enactment of the legislation.

FIEs are based on the taxable year and are defined as entities where an SFE can appoint a covered officer, an SFE owns more than 10%, or one or more SFEs own 25% or hold 25% of debt in the aggregate. FIEs also include entities that, during the previous taxable year, made a payment to an SFE of 10% (5% for § 45X) of total payments, or knowingly makes such payments to more than one SFE of 25% of the total payments (15% for § 45X). FIE restrictions are effective for tax years beginning two years after enactment.

At the component level, there are also prohibitions if a taxpayer received “material assistance from a prohibited foreign entity,” holds a licensing agreement with an SFE or FIE, or if the taxpayer makes certain payments other than for goods, which can all eliminate eligibility for the tax incentives.

Should these provisions be retained in the final Bill, they will naturally create ambiguity in what entities will be listed as FIEs and muddy stakeholders’ planning.

The uncertainty created by the Bill is compounded by the Internal Revenue Service rulemaking process that will follow the Bill’s enactment. Even if the Bill passes both chambers of Congress and is signed into law by President Trump in July, we may not see clear guidance until the second quarter of 2026. The U.S. Department of the Treasury will need to clarify several provisions of the Bill through revising current guidance and issuing new rules. The IRS rulemaking process typically takes twelve months after new tax legislation has been enacted, forcing stakeholders to wait until next year to see exactly how the IRS will enforce the Bill’s provisions.

Perhaps as an acknowledgement of the potential industry disruption it creates, the current draft of the Bill includes safe harbor provisions under § 48E and § 45Y. However, the safe harbor is quite narrow.

Safe harbor provisions in new federal legislation often provide relief for developers who have commenced construction or spent 5% of total project costs. The Bill, however, implements extremely short timelines to keep projects qualified for tax credits. These short qualification windows undermine industry stakeholders’ financial plans that rely on specific projects to qualify for the credits. Under the Bill, Solar developers will need to commence construction of projects within 60 days of the Bill’s enactment and be “placed in service,” meaning delivering power, by the end of 2028 to remain qualified for the tax credits. The Bill’s emphasis on construction commencement means early-stage projects will likely struggle the most to meet the safe harbor deadlines.

While the Bill does not alter the transferability of § 48E or § 45Y tax credits, it does restrict the transferability of the § 45X tax credit by cutting off eligibility for components sold after December 31, 2027. The limitation on transferability adds another layer to disrupted financial planning, project development and business growth opportunities.

The expanded and confusing definition of FEOCs, narrowed safe harbor provisions and limitations on transferability in the Bill put the solar industry at risk of losing tax credits that have been critical to manufacturing, project financing and planning. The Senate is expected to move fast with a deadline of July 4th. It remains to be seen how the Senate will modify the House version. With an expedited Senate process, clean energy manufacturers, developers, and financiers must be ready to act fast and understand the impacts this new legislation will have on their business.

Domestic manufacturers and developers should closely examine their current supply chains and project timelines and prepare contingency plans to react to the upcoming legislation. If the proposed FEOC provisions are passed in current form, taxpayers sourcing materials and components from covered nations will need to ensure they have an intimate understanding of their supply chain to ensure compliance with the FEOC rules.