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Key Changes

• Eliminates the “5% safe harbor” for the Section 45Y clean electricity production tax credit (PTC) and the Section 48E investment tax credit (ITC) for all wind projects and for solar projects of more than 1.5 megawatts (MW).

• Leaves in place the tougher “physical work” test, which considers the amount of work done on a project.

• Implements strict continuity rules.

Guidance Determines 2027 Deadline

OBBB repealed the PTC and ITC for wind and solar projects unless they are placed in service by the end of 2027. In July, President Trump issued an executive order titled “Ending Market Distorting Subsidies for Unreliable, Foreign-Controlled Energy Sources,” which directed the Treasury to issue guidance to determine whether a project began or is subject to the December 31, 2027 deadline.

• Began construction after July 4, 2026: Wind and solar projects that have not started construction by July 4, 2026 must be in service by the end of 2027 to qualify for the tax credits.

• Began construction by July 4, 2026: Wind and solar projects that began construction before July 4, 2026 can be placed in service after 2027.

“Physical Work” Replaces 5% Safe Harbor

• Under the 5% safe harbor, a project begins construction when the taxpayer pays or incurs 5% or more of the total cost of the facility.

• Now, a developer must have performed “physical work of a significant nature,” which is determined under a “facts-and-circumstances” approach.

Types of “Physical Work”

Both off-site and onsite work can be used to demonstrate that physical work of a significant nature has begun. Qualifying work includes:

• Off-site work may include the manufacture of components, mounting equipment, support structures such as racks and rails, inverters, and transformers and other power conditioning equipment;

• On-site work for wind projects may include such activities as the excavation for the foundation, the setting of anchor bolts into the ground, or the pouring of the concrete pads of the foundation. On-site work for solar projects may include the installation of racks or other structures to affix photovoltaic (PV) panels, collectors, or solar cells to a site.

• Physical work of a significant nature does not include preliminary activities, including planning, designing, permitting, site clearing, financing, and warehousing.

September 2, 2025 Deadline

• Given that the rules apply to projects that begin construction on or after September 2, 2025, wind and solar projects can start construction before September 2, 2025 by beginning physical work of a significant nature or by incurring 5% of project costs.

Continuity Requirements

• If an applicable wind or solar facility is not placed in service within four years, the project developer will have to show continuous construction to be allowed more time to finish the project.

• Disruptions such as weather delays, permitting, supply chain shortages, and labor stoppages are allowed.

• Whether a taxpayer maintains a continuous program of construction to satisfy the Continuity Requirement will be determined by the relevant facts and circumstances.

Rooftop Solar Exclusion

The changes apply to utility-scale solar and provide a significant exclusion for smaller solar facilities, such as rooftop solar for homes and businesses. Solar projects with a maximum net output of 1.5 MWs or less can continue to claim the 5% safe harbor if they begin construction after September 2, 2025, and before July 4, 2026.

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Below are the key changes to the major energy tax provisions.

• Clean vehicle tax credits: The law accelerates the expiration of the “clean vehicle” tax credits for electric vehicles (EVs) to 2025 and 2026 from 2032.

• Residential energy efficiency credits: The law also accelerates the expiration of residential energy tax credits to 2025 and 2026.

• Technology-neutral tax credits: The OBBBA phases out the §45Y and §48E clean electricity production and investment credits beginning in 2034. The production and investment credits for wind and solar is repealed unless the project is placed in service before 2028. If the wind or solar project is placed in service after 2027, construction must begin before July 4, 2026.

• Foreign Entity of Concern (FEOC): The law expands the FEOC rules to restrict credit availability to taxpayers that are FEOC or receive material assistance from FEOCs.

• Carbon capture: The law implements the foreign entity rules for the §45Q carbon oxide sequestration credit. It also repeals transferability for facilities that begin construction two years from the bill’s enactment.

• Clean fuels: The law extends the Section 45Z clean fuel production credit through December 31, 2029, from the current expiration at the end of 2027.

• Credits transfers: The law retains the ability of entities to transfer credits but prohibits transfers to prohibited FEOCs or entities that receive material assistance from prohibited FEOCs.

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