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Senate's Clean Energy Tax Credit Shake-Up: What Corporate Buyers Need to Know

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Act Now to Secure Current Tax Credit Incentives

The Senate Finance Committee has unveiled its draft changes to energy tax incentives the week of June 16, a move with significant implications for corporate renewable energy strategies. There was slight relief on the timeline for wind and solar vs the House version, positive news for battery storage and other technologies, but tougher stances on advanced manufacturing. Our team has provided a brief summary, as this continues to be top of mind for many of our clients.

Key Proposed Shifts & Their Impact on Corporate Renewables:

  • Accelerated Phase-Outs for Wind and Solar: Unlike the House bill, which terminated many clean energy credits after 2025, the Senate's draft allows wind and solar projects to qualify at current credit rates if they begin construction by the end of 2025. After that, credits would quickly phase down to 60% in 2026 and 20% in 2027, before being eliminated in 2028. This is a faster sunset for these credits vs the original Inflation Reduction Act (IRA), but less abrupt than the House bill.  It is important to note that if this piece passes into law, many projects will start construction by the end of 2025 to safe-harbor the full value of the credits.  Construction deadlines to finalize projects will be important to fully understand.

  • Technology-Neutral ITC and PTC Extensions for Others: The Senate proposal extends the full value of technology-neutral production and investment tax credits for hydropower, geothermal, and nuclear projects that start construction by 2033, phasing them out incrementally until 2036. This is a stark contrast to the House bill, which often terminated credits across the board by the end of 2025.

  • Battery Storage Gets a Boost: Battery energy storage credits are a clear "winner," extended at full value through 2033. The House bill generally terminated these types of credits after 2025. Battery storage credits are a common asset class in the tax credit transferability market.

  • Advanced Manufacturing (45X) Changes: The Senate introduces a phase-out of the 45X credit for critical minerals starting upon enactment, along with accelerated wind-component ineligibility post-2027, and a ban on stacking tax credits for vertically integrated production processes starting in 2027. Stricter "Foreign Entity of Concern" (FEOC) restrictions would also apply immediately. The House proposal for 45X largely ended wind components after 2027 and other components after 2031, with transferability also ending after 2027, and FEOC restrictions applying. The Senate's FEOC provisions are generally stricter and effective immediately for ownership or influence, with some sourcing restrictions phasing in by 2026 or 2027.

  • Transferability Remains Strong: Crucially for corporate buyers, transferability of clean energy credits remains available for the duration of the underlying credits in the Senate proposal. The House bill nominally extended transferability to 48E and 45Y but with "no functional benefit for any credit other than nuclear given other restrictions."

The Time to Act is Now

Remember, this is a draft Senate bill, not law. Significant negotiation lies ahead. However, for corporate buyers of renewable energy, the potential for accelerated phase-outs for wind and solar underscores a critical need for urgency. If you're considering Power Purchase Agreements (PPAs) or Tax Credit Transfer (TCT) deals, prioritize them now. Existing, grandfathered, or safe-harbored projects are generally expected to survive any final legislation.

In the near-term, Transferable Clean Energy Tax Credits (TCTs) can help to expand financing options, reduce capital costs, and accelerate renewable energy deployment—particularly benefiting smaller or newer developers who may struggle to fully utilize traditional tax credits. 

As our team of consultants evaluates the current landscape for our clients, we believe that getting deals done ASAP on tax credit transferability projects is the best way to secure current incentives.

For more information on this topic, get in touch with our subject matter team: Contact a Renewable Energy Expert Today

Contributor:

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Hans Royal, Senior Director Client Development, Renewable Energy & Carbon Advisory

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