The OBBBA introduced stricter foreign ownership and sourcing requirements, tighter project deadlines, and heightened compliance challenges for those looking to take advantage of the new and expanded clean energy tax credits
Key highlights:
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Stricter foreign entity requirements and sourcing rules — The OBBBA imposes stricter requirements for foreign entity and sourcing, especially targeting Chinese involvement, which significantly impacts clean energy project eligibility for tax credits.
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New compliance requirements for buyers — Developers and tax credit buyers must carefully comply with new documentation, supply chain, and ownership requirements to avoid disqualification or recapture of credits.
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Early planning is essential — Accelerated deadlines for wind and solar projects, along with ongoing uncertainty about compliance standards, make early and thorough planning essential for success.
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The One Big Beautiful Bill Act (OBBBA), which passed in early July, represents a major shift from the industrial and energy policies set out in 2022’s Inflation Reduction Act (IRA). For example, the OBBBA makes significant changes to the tax credits available for eligible clean energy components and facilities, while increasing support for fossil fuels.
The legislation also introduced tougher foreign entities of concern (FEOC) requirements that, while also applicable to Russia, North Korea, and Iran, will primarily restrict the participation in the US clean energy sector (whether as owner, investor, lender, or supplier) by companies owned or controlled by the Chinese government or its citizens and residents. These restrictions present significant challenges for developers given China’s dominance in the clean energy supply chain.
OBBBA’s changes to clean energy credits
The OBBBA introduces several important revisions to federal clean energy tax credits, which, as part of the IRA, had been reshaping the landscape for developers and investors in the clean energy sector. The OBBBA’s revisions include:
Stricter FEOC requirements — Clean energy tax credits are not available to any project owned by a specified foreign entity (SFE) or a foreign-influenced entity (FIE), over which an SFE has effective control, or, in some cases, that receives material assistance from an SFE or FIE. The material assistance requirement is intended to limit sourcing of equipment, components, and critical minerals from China and applies to credits under Sections 45X, 45Y, and 48E of the IRA.
Accelerated deadlines for project credit qualification — The OBBBA shortened the deadlines for several types of clean energy projects, but especially for wind and solar projects, which must begin construction by July 4, 2026, or failing that, be placed in service by December 31, 2027. These tight deadlines — coupled with potential changes to the requirements for beginning construction that are expected after an executive order issued on July 7, 2025 — raised significant planning issues for project developers and investors in the US clean energy sector.
No changes in other areas of clean energy — The tax credits for other clean energy technologies — such as battery storage, geothermal, and nuclear — were largely left unchanged. But these projects are also subject to the more stringent FEOC regulations.
You can find more information on the OBBA from Thomson Reuters Practical Law here
Continuation of key IRA innovations
The IRA introduced two new provisions that have had a material impact on clean energy project development. Bonus credits increased the amount of tax credit available to qualifying projects by 10% or 20%. This includes an energy community bonus for locating a project in communities affected by coal mine or coal plant closures.
The other was the ability to sell tax credits to unrelated parties for cash (known as transferability), which gave project owners a new and less expensive method to monetize their clean energy tax credits than traditional tax equity.
The OBBBA didn’t alter the bonus credits and producers of clean energy projects can still qualify for bonus credits if they fulfill certain conditions. It did, however, extend the energy community bonus to advanced nuclear energy facilities located in certain communities.
Transferability remains, but with FEOC restrictions. Projects subject to the new FEOC restrictions are disqualified from receiving tax credits, potentially limiting the supply of tax credits in the market. The new material assistance requirements also add a layer of complexity that buyers of tax credits subject to these requirements must consider.
You can read more on transferability under the IRA from Thomson Reuters Practical Law here
Guidance for project developers
Going forward, project developers will need to navigate complex new laws and regulations regarding FEOCs and what it means to begin construction for wind and solar projects. To avoid credit disqualification and manage compliance risk, project developers should keep detailed records to demonstrate compliance with the FEOC ownership and establish effective control requirements.
Project developers also should audit their supply contracts and carefully track the source and costs of their equipment and other inputs to ensure compliance with applicable material-assistance caps. Similarly, they need to insert robust FEOC provisions in their supply, operation & maintenance, and construction agreements to ensure continued compliance with these requirements.
Regarding their wind and solar projects, project developers need to check their project development pipelines to determine whether they can meet the new deadlines. Unfortunately, developers are in a tough spot at the moment because they are not able to determine with any certainty the activities that may be sufficient to meet this requirement until the new guidance around beginning construction is issued. In the interim, developers should make sure that any actions they take toward construction are meaningful and not intended to manipulate this requirement, although there is no guarantee that action will prove sufficient.
Guidance for tax credit buyers
Buyers of tax credits must take action — such as conducting more extensive due diligence — to ensure the purchased credits are not disqualified or, in certain cases, recaptured, and that the credits deliver on the intended financial benefit. Buyers also should obtain detailed documentation from tax credit sellers to verify there is no direct or indirect ownership or effective control by FEOCs and to confirm that the project or component underlying the credit has not received material assistance from FEOCs in excess of the permitted caps.
Tax credit buyers should also consider inserting FEOC-specific provisions in their tax credit transfer agreements, including:
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- adding specific representations around FEOC compliance, sourcing of materials, and eligibility under the OBBBA;
- expanding the seller’s indemnification provisions to include losses incurred if the purchased credits are later disallowed due to FEOC or sourcing violations; and
- requiring sellers to promptly notify them of any changes in the sellers’ FEOC status or supply chain arrangements that could affect credit eligibility. More expansive tax credit insurance policies may also be obtained to mitigate the additional risks the FEOC restrictions present.
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Clearly, the OBBBA brings new challenges and opportunities for clean energy developers and investors; and careful planning and strict compliance will be essential for success in this changing landscape.
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