By Cleantech Law Partners Staff (www.cleantechlaw.com)
In late May 2025, the U.S. solar industry was rocked by the unexpected passage of a draft tax
bill in the House of Representatives that threatens to dramatically reshape the availability
and accessibility of the federal solar Investment Tax Credit (ITC). The legislation, which
passed in a late-night vote, introduces major changes to Section 48E of the Internal Revenue
Code—the ITC provision created under the Inflation Reduction Act of 2022. While
stakeholders were prepared for a gradual phase-out of the incentive over time, the House’s
latest version of the bill proposes an abrupt and far-reaching rollback that could have
severe consequences for ongoing and future solar projects.
Section 48E was initially designed as a technology-neutral investment tax credit to promote
renewable energy deployment starting in 2025. It replaced the traditional Section 48 and 45
tax credits by offering a simplified structure that applied uniformly across qualifying
technologies, including solar, wind, geothermal, and more. The law allowed for a base credit
of 6%, which could rise to 30% if labor, apprenticeship, and domestic content requirements
were met. It also included bonus credits for projects sited in energy communities and low-
income areas. One of its most transformative features was the ability to transfer tax credits
to unrelated third parties, opening up the market to a broader pool of investors and
developers without requiring complex tax equity partnerships.
However, the new draft bill that emerged from the House Ways and Means Committee and
was quickly passed by the full chamber, upends many of these expectations. Under the bill’s
current language, Section 48E would begin to phase out for facilities placed in service after
2028. This timeline is far more aggressive than previously anticipated and sharply limits the
runway for new projects to qualify under the existing incentive structure.
Even more disruptive is the provision that repeals the transferability of the ITC for any
facility that begins construction more than two years after the date the bill is enacted. This
repeal strikes at one of the most significant innovations of the IRA, which had allowed
project sponsors without sufficient tax liability to monetize credits efficiently. If passed by
the Senate in its current form, the rollback could force a return to traditional tax equity
structures that have historically excluded smaller developers and added legal and
transactional complexity to renewable energy financing.
Additionally, the bill introduces a national security-driven provision that disqualifies ITC
eligibility for projects that receive “material assistance” from entities tied to certain foreign adversaries.
Specifically, it prohibits eligibility for any project beginning construction more
than one year after enactment if it uses equipment manufactured by, or otherwise receives
support from, entities located in or owned by nationals of China, Russia, North Korea, or
Iran. While intended to curb dependence on hostile nations for critical energy
infrastructure, the vague language surrounding what constitutes “material assistance”
raises concerns about implementation, compliance burden, and unintended disqualification.
Importantly, the bill leaves certain parts of the ITC framework intact. Projects that began
construction under the original Section 48 ITC before 2025 remain unaffected. Likewise, the
bonus credits for domestic content and energy community siting under Section 48E are
preserved, including the domestic content threshold of 40%. The bill also makes no changes
to the Alternative Minimum Tax (AMT) treatment of the ITC, meaning the credit still cannot
be used to offset AMT liability.
The bill’s most immediate impact is the compressed timeline for developers to act. Under
the bill, only projects that begin construction within 60 days of final enactment will be
eligible for the existing Section 48E structure, including the ability to transfer credits. For
many in the industry, this narrow window is a logistical and financial impossibility given
the time required to complete permitting, design, interconnection, and procurement
processes. The abrupt cutoff could place thousands of megawatts of solar capacity in
jeopardy.
Reactions within the industry have been swift and concerned. Many stakeholders are now
looking to the Senate as the last line of defense against what they see as a hasty and
shortsighted policy reversal. Industry groups are actively lobbying for amendments that
would extend the transition period, preserve transferability, and clarify the definition of
prohibited foreign involvement to avoid stalling the domestic solar supply chain.
As the bill moves to the Senate, legal and strategic considerations are top of mind for
developers and investors. Projects should be reviewed immediately to determine eligibility
windows and assess exposure to foreign content risk. Supply chain audits may be necessary
to demonstrate compliance, and developers may need to revisit their tax structuring models
in anticipation of a return to more restrictive credit monetization frameworks. If passed
into law, the bill would represent the most significant retrenchment of federal solar
incentives in a decade, and its ripple effects would be felt across permitting, procurement,
and financing nationwide.
For now, the industry is in a race against the legislative clock. Whether the Senate softens
the House’s harsh provisions or adopts them wholesale will determine the trajectory of the
U.S. solar market for years to come. In the meantime, stakeholders must act quickly, plan
defensively, and brace for what could be a profound shift in renewable energy policy.
For more information, please contact www.cleantechlaw.com