China offers 10% tax credit for foreign investors reinvesting domestic profits from 2025 to 2028.

China offers 10% tax credit for foreign investors reinvesting domestic profits from 2025 to 2028.

The Senate Finance Committee (SFC) has released a reconciliation bill text that includes modest adjustments to the House-passed reconciliation bill provisions for Internal Revenue Code (IRC) Section 48E, the technology-neutral, clean electricity investment tax credit (ITC); and Section 45Y, the clean electricity production tax credit (PTC). The SFC's proposal aims to retain the core benefits of the Inflation Reduction Act (IRA) energy tax incentives while significantly truncating the runway for wind, solar, and clean manufacturing tax benefits [1].

Key Provisions

Solar and Wind Phase-Out:
The SFC reconciliation proposal preserves the baseline framework of the IRA's creation of the IRC Sections 48E and 45Y credits but accelerates the phase-out for solar and wind technologies. Projects must begin construction by the end of 2025 to receive 100% of the credit; those starting in 2026 will only receive 60%, 20% in 2027, and 0% by 2028 and thereafter. Exceptions are made for energy storage technology and large generation projects on federal land [1].

Transferability:
The Senate bill retains transferability for both Sections 48E and 45Y, as well as all other originally eligible clean energy credits. This allows entities to transfer the value of their credits to unrelated taxpayers for cash, a major divergence from the House proposal [1].

Foreign Entity of Concern (FEOC) Restrictions:
The SFC's bill adds constraints on transfers to specified foreign entities, defined similarly to the House proposal. Both sellers and buyers of credits must comply with FEOC restrictions to qualify [1].

Impact on the Clean Energy Market

The accelerated phase-out of solar and wind credits, without sufficient exceptions or flexibility, could severely impact the development of these critical renewable resources. The termination of the residential leasing option for Section 25D residential solar and wind property further exacerbates this issue. The solar and wind industries, leaders in U.S. zero-emissions energy, could face widespread cancellations of investments, business closures, job losses, and a chilling effect on forward-looking markets [1].

Domestic Content Update

The SFC version updates the Section 48E domestic content rule for bonus credit eligibility to match Section 45Y. The domestic content required varies based on the start date of construction, with higher requirements for projects beginning construction after Dec. 31, 2025. The repeal of the waiver for direct pay eligibility raises the bar for compliance, potentially impacting most producers and developers [1].

Conclusion

The Senate Finance Committee's reconciliation bill proposes modest changes to the IRA energy tax incentives, primarily by accelerating the phase-out of solar and wind credits. While the bill retains transferability and updates domestic content rules, the early termination of these credits could have significant negative impacts on the clean energy market. Advocates for the continuation of these credits have a critical window to influence the final version of the bill before it is sent to the House for approval [1].

References:
[1] https://www.novoco.com/notes-from-novogradac/senate-finance-committee-reconciliation-bill-proposes-modest-changes-to-house-repeal-of-ira-energy-tax-incentives-opting-to-let-sections-48e-and-45y-quickly-expire-for-solar-and-wind