The “Big, Beautiful Bill” and the implications for corporate taxpayers and the clean energy industry

NOTE TO READERS: This content is current as of Friday, May 16, 2025. Given current discussions in the House, we will post updates here as they become available.

On May 12, the House Ways and Means Committee issued a draft tax bill that extends tax cuts from the 2017 Tax Cuts and Jobs Act, while rolling back parts of the Inflation Reduction Act to help cover the cost. The House Speaker, Mike Johnson (R-Louisiana), is hoping to put the bill through the House by the end of May, after which it will be sent to the Senate.

The draft bill provides short-term stability, with a projected uptick in clean energy tax credit transactions for 2025 and the next 2+ years

In the short term, we expect an uptick in clean energy tax credit transactions. The draft bill provides guidance that current year and near-term tax credits and associated transfers will be respected:

• Tax credits will not be retroactively repealed for the 2025 tax year
• For proposed credit phasedowns and transferability repeal, there is a forward-looking transition period
  

For tech-neutral credits (§45Y and §48E), the tax credit will remain in place for projects that are placed in service by the end of 2028 before phasing down over a 3-year period. Transferability will remain in place for projects that begin construction within 2 years from the enactment of the bill. For example, if the bill is enacted in August 2025, projects that begin construction by August 2027 will be able to transfer credits. This will lead to a wave of projects looking to establish start of construction in the near term.

In addition, many corporate taxpayers have held off on purchasing 2025 credits due to a lack of clarity on their 2025 tax liability. In particular, there are three outstanding tax issues that have contributed to uncertainty for tax planning departments. While the bill’s impact will be to lower corporate tax liability, buyers will have better visibility into tax liabilities and as a result will be able to more confidently move forward on tax credit purchases:

• Section 174: reinstate immediate expensing of R&D costs for tax years from 2025 to 2029
• Bonus depreciation: reinstate 100% bonus depreciation for property acquired after January 19, 2025, and before January 1, 2030‍
• Section 163(j): reinstate the more favorable calculation of the limit on the interest deduction under Section 163(j) for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030

In 2024, a wave of buyers entered the market in the 3rd quarter of the year when they had clarity on their tax liabilities. We could see a similar dynamic this year, with many buyers coming into the market late in the year… and having to compete over a dwindling number of tax credit opportunities.

However, the proposal as written creates medium to long-term uncertainty for clean energy projects

In the medium to long-term, the proposed changes are concerning for clean energy projects and will significantly slow clean energy deployment if enacted. The primary changes are as follows:

• Accelerated phasedown of clean energy tax credits
• Transferability repeal, with transition period
• FEOC (Foreign Entity of Concern) restrictions, which begin in 2026 or later and will be difficult to comply with as currently written

Summary of proposed tax credit phasedown and transferability repeal schedule

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The majority of credits are subject to accelerated phasedown; the clean energy industry will advocate for tax credit eligibility to be based on start of construction rather than placed in service date

Under the draft bill, most clean energy credits are subject to an accelerated phasedown schedule. There are a few exceptions:

• §45Q (carbon oxide sequestration) credits and §45 production tax credits and §48 investment tax credits (with the exception of geothermal heat pumps) remain unchanged and do not have an accelerated phasedown
• §45Z (clean fuel production) credits will be extended, through the end of 2031

For tech-neutral credits (§45Y and §48E) and geothermal heat pumps under §48, the eligibility and amount of the credit will be based on when projects are placed in service rather than when projects began construction.

Tax credit eligibility has historically been based on when a project begins construction, which can be achieved through two well-established methods: the physical work test, or the 5% safe harbor. Shifting to placed in service date will be more challenging for clean energy developers looking to raise financing. Financiers will need to get comfortable with a project’s projected placed in service date, which can be multiple years in the future and is often hard to predict due to factors such as interconnection queues, permitting, labor availability and supply chain disruptions. We expect the clean energy industry to push back on this change.

Tax credit buyers will need to carefully diligence the placed in service date, to ensure that the proper tax credit amount is reflected.

The bill proposed repeal of transferability with a transition period; extending transferability will be a major focus for corporate taxpayers, utilities, and clean energy advocates

Transferability has unlocked a major source of financing for clean energy projects. Fortune 500 corporations from virtually every industry have purchased transferable tax credits, and have started integrating purchases into their tax planning process. Corporations purchased over $25 billion in tax credits in 2024, and the market is expected to continue growing.

Projects that begin construction within 2 years of the tax bill’s enactment will still be eligible for transfer. These projects will then have 4 years to be placed into service; for example, a project that begins construction by August 2027 will have until August 2031 to be placed into service and maintain eligibility to transfer credits. For §48E, the credits will be generated for the tax year the project is placed in service. For §45Y, 10 years of production-based credits will be generated starting the tax year the project is placed in service.

Extending transferability will be a major focus for the clean energy industry in the next round of negotiations.

The bill includes complex restrictions to avoid benefitting Foreign Entities of Concern. The current draft is problematic and will potentially cause a major slowdown in future clean energy projects, but we don’t expect significant market disruption in 2025

Complex Foreign Entity of Concern (FEOC) restrictions will apply to §48E, §45Y, §45Q, §45U, §45X and §45Z credits to ensure that the benefit of tax credits do not accrue to China, Russia, Iran, or North Korea. Observers expect the language to change significantly in the Senate to make the rules clearer, as the current draft is complex and may not be administrable in its current form.

We do not expect significant disruption to the market in 2025. Most PTCs and ITCs currently looking to be transferred began construction before 2025 and therefore qualify for the legacy §45 and §48 credits, which are not subject to FEOC rules.

For the newer §45Y and §48E credits, there is a transition period for complying with FEOC rules (e.g., projects that begin construction within one year of the bill’s enactment do not need to comply with FEOC at the project level. Rules to ensure FEOC compliance at the taxpayer level begin in 2026, and become stricter in 2028).

However, there is an annual compliance requirement to ensure that “specified foreign entities” do not benefit from tax credits. There are also payment restrictions to ensure that prohibited foreign entities do not earn a certain amount of dividends, interest, compensation for services, rents, royalties, or similar payments. For §48E credits, these compliance requirements must be tested for 10 years, and any breach results in a full recapture of the §48E credits. A recapture period this long and also this difficult to diligence will make it more challenging to raise financing or sell tax credits from projects that require FEOC compliance. As a result, we expect the clean energy industry to lobby for clarifications and adjustments to the FEOC restrictions.

For a full discussion of FEOC, please refer to Norton Rose Fulbright’s excellent summary here.

Conclusion

We expect a strong mobilization from the industry (including clean energy developers, banks, utilities, and corporates) to advocate against early phasedown of tax credits, repeal of tax credit transferability, and to create a workable version of FEOC regulations.

On May 16, Reunion hosted a webinar with Keith Martin of Norton Rose Fulbright, a leading authority on energy and tax policy. We address these topics in depth, and the conversation is available to listen to here.