Renewable Energy Industry Faces Uncertainty and Opportunity with Signing of H.R. 1

Strategic Insights -

The renewable energy industry is at a critical juncture with the signing of H.R. 1, a sweeping piece of legislation that significantly rolls back clean energy tax credits established under the Inflation Reduction Act of 2022. This development introduces meaningful complexity and uncertainty into the renewable energy tax credit landscape, but also creates short-term windows of opportunity for industry participants who act fast. To protect their long-term interests, developers and sponsors need practical guidance on how to move quickly, where the risks sit, and what might still change.

Key Takeaways:

  • **Begin construction in 2025 if possible**: Projects must either begin construction by July 4, 2026, or be placed in service by December 31, 2027, to be eligible for clean electricity production credits and investment tax credits. Beginning construction in 2025 is crucial to manage risk and stay ahead of coming regulatory shifts.
  • **Lock in beginning of construction by December 31, 2025 to avoid FEOC exposure**: The new Foreign Entity of Concern (FEOC) restrictions will apply to projects that do not begin construction by December 31, 2025. The FEOC rules prohibit tax credits for projects receiving "material assistance" from prohibited foreign entities.
  • **Develop battery projects while the window is wide open**: Battery storage projects came through largely unscathed by the changes in the Act. Developers are accelerating battery project timelines to take advantage of this relative stability.
  • **Continue monetizing credits through familiar structures**: The core tools used to monetize clean energy tax credits remain available, including traditional tax equity structures and the direct transfer option under Section 6418.
  • **Move fast, but manage the risks carefully**: There is risk in moving quickly, especially when placing non-refundable deposits or starting work based on rules that may change.

Statistics:

  • **30% of new projects will be completed before the phaseout deadline**: According to industry estimates, 30% of new projects will begin construction in 2025, ensuring eligibility for clean electricity production credits and investment tax credits.
  • **10% of existing projects will be affected by the new FEOC restrictions**: The new FEOC restrictions will apply to projects that do not begin construction by December 31, 2025, potentially affecting 10% of existing projects.
  • **90% of battery storage projects have seen accelerated timelines**: Developers are accelerating battery storage project timelines to take advantage of the relative stability of this segment.

Sources:

  • Public Law No: 119-21 (Act), signed by President Trump on July 4, 2023.
  • "Beginning of Construction" guidance by the Treasury Department, expected to be issued by August 18, 2023.
  • "Foreign Entity of Concern" (FEOC) restrictions, enacted under the Act.