UPDATE: Senate Joins House in Targeting Solar and Wind—But Pushes Back on Storage, Geothermal, and Hydropower

Updated June 18, 2025

On June 16, the Senate Finance Committee released its version of the tax provisions of the Reconciliation Bill. Like the House version (H.R. 1) passed on May 22, the Senate version targets solar and wind tax incentives for early termination, along with those for clean hydrogen and electric vehicles. Like the House bill, the Senate bill also disqualifies projects that receive material assistance from prohibited foreign entities. However, it clarifies that a foreign entity is providing "material assistance" only if a project's non-foreign content falls below a specified cost ratio threshold.

Storage and clean electricity technologies other than wind and solar appear to be the bright spots in the Senate version, and the elimination of the House bill's placed-in-service deadline is welcome relief. These technologies remain eligible for the current tax credits until 2034 compared to the virtually immediate phase-out they faced in the House version. Still, clean energy proponents had hoped for a stronger pushback in the Senate to the House bill. The House and Senate will have to agree on one final version of H.R. 1 that can be approved by both chambers, and changes are therefore expected in the reconciliation process.

What's Different From the House Bill

The Senate bill's changes to the more significant energy tax credits include:

• Solar and Wind Projects. Solar and wind projects that begin construction before the end of 2025 will qualify for the current clean electricity investment tax credit (ITC) (Section 48E) and clean electricity production tax credit (PTC) (Section 45Y) established under the Inflation Reduction Act of 2022 (IRA). Wind and solar projects beginning construction in 2026 will only qualify for 60% of the current ITC or PTC, declining to 20% for projects beginning construction in 2027, and to 0% for projects beginning construction in 2028 or later. The Senate bill does not include the additional "placed in service" deadline found in the House bill that has been particularly troubling to the renewable energy industry—the House version requires wind and solar projects to both begin construction within 60 days of the bill's enactment and be placed in service by the end of 2028. Notably, the Senate's 2026-2028 phase-out and elimination of the wind and energy tax credits does not apply to energy storage technology built at a wind or solar facility.
• Batteries and Other Energy Technologies. In a departure from the House version of the bill, batteries (including, as noted, batteries at solar and wind projects) and electric generating technologies other than solar and wind—such as geothermal, hydropower, and nuclear—remain eligible for 100% of the current tax credits if the project begins construction by the end of 2033, after which a three-year phase-out begins before the credits expire in 2036.
• Residential Solar and Wind Projects. Similar to the House-passed bill, the clean electricity ITC and PTC are no longer allowed for solar and wind facilities that are rented or leased to homeowners.
• Foreign Entity Involvement. Similar to the House bill, for any project beginning construction after 2025, tax credits will not be available for taxpayers that are prohibited foreign entities or if construction includes any material assistance from a "prohibited foreign entity." "Material assistance" is measured by a cost ratio that measures the percentage of manufactured products and components incorporated into the project that do not involve prohibited foreign entities. The prohibited foreign entity rules are extensive and will require developers to closely scrutinize not just their current project ownership but also supply chains, contractual arrangements, and upstream ownership and control. In addition, the statute of limitations will be extended to 6 years and new penalties will apply to errors in determining whether a project received material assistance from a prohibited foreign entity and for certain certification failures relating to whether prohibited foreign entities were involved in the manufacturing of property or components. Beginning two years after the bill is signed into law, the ITC will be subject to recapture if certain payments are made to a specified foreign entity during the 10-year period after the project is placed in service. These strict requirements are likely to have a chilling effect on utilization of the tax credits.
• Elective Payments. Elective, or direct cash, payments to tax-exempt entities (Section 6417) will be subject to a mandatory "haircut" for projects beginning construction after 2025 that do not satisfy the domestic content requirements because the exceptions to the domestic content requirement based on increased overall project costs or the lack of available domestically produced steel, iron, or manufactured products will be eliminated.
• Transferability of ITC and PTC. The Senate bill generally retains transferability of credits until their repeal under the IRA (Section 6418). However, tax credits cannot be transferred to a "specified foreign entity." Projects will still need to satisfy the beginning of construction deadlines described above to avoid phase-out or elimination of the ITC or PTC.
• Advanced Manufacturing Production Credits. Like the House bill,the advanced manufacturing production credit (Section 45X) is eliminated for wind energy components produced and sold after 2027. However, the Senate bill would delay the beginning of the three-year phaseout of the credit for the production of critical minerals to 2031. Beginning in 2026, no credit is available to a taxpayer that is a prohibited foreign entity nor is any credit allowed for any component that is the subject of material assistance from a prohibited foreign entity.
• Commercial Clean Vehicles. The tax credit for qualified commercial clean vehicles (Section 45W)—like the personal clean vehicle credit (Section 30D)—is eliminated for all such vehicles acquired more than 180 days after the bill is signed into law, as compared to the House's elimination of these credits for tax years after 2025 (with a limited written binding contract exception). In addition, commercial clean vehicles under 14,000 pounds acquired after June 16, must comply with the critical mineral and battery component restrictions in the Section 30D clean vehicle credit.
• Charging Stations. Tax credits for alternative fuel vehicle refueling property (Section 30C) are eliminated for property placed in service more than one year after the bill is signed into law, as compared to the House's elimination of these credits for tax years after 2025.
• Clean Hydrogen Production Credit. Like the House bill, the Senate bill terminates the Section 45V clean hydrogen production credit for any project that begins construction after December 31, 2025.

What Happens Next

This legislation is certain to undergo additional change as it makes its way through the Senate and then in negotiations with the House. We will be updating this summary periodically as that process unfolds. In the meantime, for further information please feel free to contact either Pamela Charles or Merrill L. Kramer, or any other member of Davis Wright Tremaine LLP's energy project finance practice.

Our previous alert is below.

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May 23, 2025: House-Passed Reconciliation Bill Takes a Bigger Bite Out of Clean Energy Tax Incentives

By a 215-214 vote, the House on May 22, 2025, passed a massive tax bill that, among many other things, would severely curtail portions of the federal energy tax credit provisions of the Inflation Reduction Act of 2022 (IRA). Compared to the Budget Committee version we reported on last Friday (at the bottom of this post), the House-passed bill took additional bites out of the energy tax credits to help garner the votes necessary to advance the bill through the House.

The measure is now headed to the Senate, where many senators have announced their opposition to the energy tax provisions of the amended bill and further changes are expected.

Additional changes to the energy tax credits include:

• Clean Electricity Investment Tax Credit and Production Tax Credit. The technology-neutral clean electricity ITC (Section 48E) and PTC (Section 45Y) (which expands the prior tax credits to include all clean electricity technologies) will now be eliminated for projects (other than nuclear projects) that have not both begun construction within 60 days after the bill is signed into law and been placed in service before 2029. Nuclear projects (including the expansion of existing facilities) remain eligible for these credits if they begin construction before 2029. (Under the prior version of the bill approved by the House Budget Committee, these credits would have begun being phased out for projects placed in service after 2028 and been completely eliminated for projects placed in service after 2031.)
• Residential Solar and Wind Projects. The clean electricity ITC and PTC are no longer allowed for solar and wind facilities that are rented or leased to homeowners when the homeowner could claim the residential clean energy tax credit if it owned (rather than rented) the solar or wind facility (Section 25D).
• Foreign Entity Involvement. The new restrictions on foreign entity ownership, influence, or material assistance are accelerated to now disqualify projects beginning construction after 2025 from eligibility for the clean electricity ITC and PTC. (Under the Budget Committee version of the bill, the new restrictions would have disqualified projects beginning construction after mid-2026 from these credits.)
• Low-Income Communities Bonus Credit. The low-income communities bonus credit allocations will end in 2028. Facilities receiving an allocation before then must be placed in service by the earlier of (i) four years after receipt of the allocation and (ii) December 31, 2028. (Under the Budget Committee version of the bill, the allocations would have remained available until 2031 and facilities would have had to have been placed in service by the earlier of (i) four years after receipt of the allocation or (ii) December 31, 2031.)
• Transferability of ITC and PTC. The transferability constraints in the Budget Committee version of the bill were dropped, leaving the transferability provisions originally included in the IRA. However, projects will still need to satisfy the beginning of construction and placed-in-service deadlines described above to avoid elimination of the ITC or PTC.
• Advanced Manufacturing Production Credits. These provisions remain unchanged from the Budget Committee version of the bill.

This legislation is likely to undergo substantial change as it makes its way through the Senate. We will be updating this summary periodically as that process unfolds. In the meantime, for further information please feel free to contact either Pamela Charles or Merrill L. Kramer, or any other member of Davis Wright Tremaine LLP's Energy Project Finance Practice.

Our original post is below.

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May 16, 2025: House Committee Blocks Tax Bill Containing Rollback of IRA Clean Energy Tax Incentives

The House Budget Committee, by a 21-16 vote on May 16, 2025, blocked a massive tax bill that would roll back portions of the federal energy tax credit provisions of the Inflation Reduction Act of 2022 (IRA). Budget Committee approval is necessary for the bill to advance to the House Rules Committee and a House floor vote before the bill could be taken up by the Senate. However, several key members of the Senate, including Josh Hawley (R-Mo.), have already stated their opposition to the House bill as currently constituted.

The opposition to the bill does not appear to stem from the proposed rollbacks and elimination of the energy tax credits contained in the bill but, rather, from Republican hardliners who seek deeper spending cuts in the bill to reduce the federal deficit. The hardliners were joined by the Democratic minority on the Committee that voted in opposition to the bill. The Republicans reportedly plan to work through the weekend to achieve a compromise that will also placate more moderate Republicans that are seeking an increase in state and local tax deductions from federal taxes. It is unclear whether a compromise would impact the proposed changes to the energy tax provisions in the bill.

Takeaways From the House Bill's Energy Provisions

As the energy provisions of the House bill are presently constituted, the bill keeps the current tax credits for renewable energy projects and batteries largely in place through 2028, to be followed by a three-year phase-down of certain tax credits. The bill introduces new limitations for projects involving prohibited foreign entities, including a "foreign entity of concern," that would deny tax credits to affected projects or trigger recapture of previously claimed credits.

Here are some of the key changes proposed in the current package:

• Energy Investment Tax Credits and Production Tax Credits. The historic renewable energy investment tax credit (ITC) (Section 48) and production tax credit (PTC) (Section 45) for projects already in operation or that began construction by year-end 2024 would not be affected, with the exception of geothermal heat pump properties. The successor technology-neutral clean electricity ITC (Section 48E) and PTC (Section 45Y) (which expands the prior tax credits to include all clean electricity technologies) would be phased down for three years beginning with projects placed in service in 2029, with complete elimination of these credits for projects placed in service after 2031.
• Geothermal Heat Pump Property. The energy investment tax credit for geothermal heat pump property (Section 48) would be phased out for facilities beginning construction after 2029, with complete elimination of this credit for facilities beginning construction after 2031. Like other provisions, the credit would be subject to the mid-2027 sunset on transferability and be disallowed for any project involving impermissible foreign entity involvement.
• Transferability of ITC and PTC. The ability of a project owner to transfer or sell tax credits to third parties for cash (Section 6418) would end for projects beginning construction more than two years after the reconciliation legislation is enacted. However, projects that begin construction within this two-year period will still need to satisfy the placed-in-service deadlines described above to avoid the phase-down and elimination of the ITC or PTC. Projects failing to begin construction during this two-year period would still be able to qualify for the full ITC and PTC if they are placed in service prior to 2029, after which the ITC and PTC would begin to phase down.
• Direct Pay. While the bill modifies the transferability provisions of the Code, the bill does not disturb the so-called "direct pay" or "elective pay" provisions that allow certain organizations to treat certain tax credit amounts, including the ITC, PTC, and clean hydrogen credits, as payments of tax and then receive a refund of that tax that is deemed paid. Entities eligible for this option include tax-exempt organizations, state and local governments, Indian tribal governments, the Tennessee Valley Authority, and Alaska Native Corporations.
• Foreign Entity Involvement. As noted, the bill contains new restrictions on foreign entity ownership, influence, or material assistance. The new restrictions would disqualify projects from eligibility for the clean electricity ITC and PTC. In the case of the ITC, violation of the new restrictions during the 10-year period after the facility is placed in service could result in recapture of the entire ITC claimed for the project.
• Low-Income Communities Bonus Credit. The low-income communities bonus credit allocations would end in 2031. Facilities receiving an allocation before then would have to be placed in service by the earlier of (i) four years after receipt of the allocation, or (ii) December 31, 2031.
• Other Bonus Credits. Other bonus credits under the IRA for satisfying the prevailing wage and apprenticeship requirements, domestic content, and energy communities will generally remain intact, but are subject to the same phase-out and elimination of the ITC and PTC described above.
• Advanced Manufacturing Production Credit. The advanced manufacturing production credit (Section 45X) would no longer be available for wind energy components sold after 2027 and for other eligible components (including applicable critical minerals) sold after 2031. Transferability would terminate for credits attributable to components sold after 2027. The credit would be disallowed for projects with impermissible foreign-entity involvement, including for components that include material assistance from a prohibited foreign entity or are produced subject to a licensing agreement (valued in excess of $1 million) with a prohibited foreign entity.
• Clean Hydrogen Production Credit. The tax credit for producing clean hydrogen (Section 45V) would be repealed for any hydrogen facility that has not begun construction by the end of 2025, and project owners would no longer be able to elect to treat these facilities as energy property for the ITC.
• Commercial Clean Vehicles and Charging Stations. Tax credits for qualified commercial clean vehicles (Section 45W) and alternative fuel vehicle refueling property (Section 30C) would generally be eliminated for tax years after 2025, with limited exceptions for clean vehicles acquired pursuant to a written binding contract that is in place as of May 12, 2025.

Additional Links:

House GOP Tax Proposal Targets Nonprofits (DWT Insight)

Joint Committee Report