Released July 02, 2025 | SUGAR LAND
en
Researched by Industrial Info Resources (Sugar Land, Texas)--While a controversial excise tax was removed from the final version of the budget bill passed by the U.S. Senate on Tuesday, the final draft still phases out the production tax credits for wind and solar energy sooner than originally stipulated.
While the production tax credits, primarily used in wind and solar development, were originally meant to last through 2032, the Senate bill now has the full tax credit available for projects that begin construction within one year of the final bill's enactment--presumably summer of 2026--without a deadline for when the projects are placed in service. Renewable energy projects starting after a year's time must be placed in service by the end of 2027 to obtain the credit.
Industry pundits are sensing a potential loophole in the law. Under current administrative operations, the Internal Revenue Service (I.R.S.), not the Energy Department or Congress, determines when a renewable energy project begins construction. Developers can qualify in two ways: (1) beginning work of a significant nature on the project, or (2) paying or incurring 5% or more of the total cost of the facility, the "safe harbor" stipulation. Under I.R.S. regulations, projects utilizing the "safe harbor" method of beginning construction have four years to be placed in service to receive the credit.
Some commentators are expecting a wave of developers to put 5% of the costs of multiple projects up front over the next year, allowing for four years to construct them and the receipt of the tax credit for their projects, potentially extending the life of the credits much farther into the future than the bill originally suggests. However, changes to the safe harbor rule could be potentially be enacted in these days of rapidly developing policy. Couldn't the I.R.S. simply change the qualifications for safe harbor, or potentially do away with the regulation entirely? As recent times have shown, laws and provisions that once seemed enshrined for years can easily by overturned or amended.
The legislation still means it's almost certain that even fewer wind and solar projects will see the light of day in the U.S. at a time when energy demand across the country is rising. Solar, battery storage and wind power represented the top three additions to the U.S. power grid last year by far, with natural gas and nuclear contributing minimal amounts. While the bill doesn't make it impossible to receive the tax credits, it makes receiving them more difficult and time-sensitive, and will likely cause the cancellation of substantial additions of power to the U.S. grid at a time when multiple artificial intelligence-capable data centers will begin using large amounts of power and the U.S. is encouraging increased production of everything from semiconductors to automobiles to steel, all of which use substantial amounts of power in their operations.
In its brief tenure, the second Trump administration has issued policies decidedly anti-renewables and supportive of power generation from fossil fuels such as coal and natural gas, as well as nuclear. While the preference for fossil fuels versus renewable energy has largely fallen along party lines, new natural gas and nuclear plants cannot be built as quickly as wind and solar projects, and therefore, with the early end of the tax credits, many industry insiders are predicting a shortfall in needed additions to the U.S. power grid for some time.
The Senate's final version of the bill does remove a proposed excise tax that would have impacted solar and wind projects starting construction after June 16, 2025, that used a certain amount of components from countries such as China. Several U.S. renewable energy projects use components from China as relying solely on U.S. components would represent a shortfall in necessary equipment.
The House's proposed bill, which was passed on to the Senate in May, was even more stringent, requiring that in order to receive the credit, developers would be required to start construction on their renewable energy projects within 60 days of the proposed law's passage. Whether U.S. President Donald Trump's goal of passing the final version of "Big, Beautiful Bill" by July 4 will succeed remains to be seen.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
While the production tax credits, primarily used in wind and solar development, were originally meant to last through 2032, the Senate bill now has the full tax credit available for projects that begin construction within one year of the final bill's enactment--presumably summer of 2026--without a deadline for when the projects are placed in service. Renewable energy projects starting after a year's time must be placed in service by the end of 2027 to obtain the credit.
Industry pundits are sensing a potential loophole in the law. Under current administrative operations, the Internal Revenue Service (I.R.S.), not the Energy Department or Congress, determines when a renewable energy project begins construction. Developers can qualify in two ways: (1) beginning work of a significant nature on the project, or (2) paying or incurring 5% or more of the total cost of the facility, the "safe harbor" stipulation. Under I.R.S. regulations, projects utilizing the "safe harbor" method of beginning construction have four years to be placed in service to receive the credit.
Some commentators are expecting a wave of developers to put 5% of the costs of multiple projects up front over the next year, allowing for four years to construct them and the receipt of the tax credit for their projects, potentially extending the life of the credits much farther into the future than the bill originally suggests. However, changes to the safe harbor rule could be potentially be enacted in these days of rapidly developing policy. Couldn't the I.R.S. simply change the qualifications for safe harbor, or potentially do away with the regulation entirely? As recent times have shown, laws and provisions that once seemed enshrined for years can easily by overturned or amended.
The legislation still means it's almost certain that even fewer wind and solar projects will see the light of day in the U.S. at a time when energy demand across the country is rising. Solar, battery storage and wind power represented the top three additions to the U.S. power grid last year by far, with natural gas and nuclear contributing minimal amounts. While the bill doesn't make it impossible to receive the tax credits, it makes receiving them more difficult and time-sensitive, and will likely cause the cancellation of substantial additions of power to the U.S. grid at a time when multiple artificial intelligence-capable data centers will begin using large amounts of power and the U.S. is encouraging increased production of everything from semiconductors to automobiles to steel, all of which use substantial amounts of power in their operations.
In its brief tenure, the second Trump administration has issued policies decidedly anti-renewables and supportive of power generation from fossil fuels such as coal and natural gas, as well as nuclear. While the preference for fossil fuels versus renewable energy has largely fallen along party lines, new natural gas and nuclear plants cannot be built as quickly as wind and solar projects, and therefore, with the early end of the tax credits, many industry insiders are predicting a shortfall in needed additions to the U.S. power grid for some time.
The Senate's final version of the bill does remove a proposed excise tax that would have impacted solar and wind projects starting construction after June 16, 2025, that used a certain amount of components from countries such as China. Several U.S. renewable energy projects use components from China as relying solely on U.S. components would represent a shortfall in necessary equipment.
The House's proposed bill, which was passed on to the Senate in May, was even more stringent, requiring that in order to receive the credit, developers would be required to start construction on their renewable energy projects within 60 days of the proposed law's passage. Whether U.S. President Donald Trump's goal of passing the final version of "Big, Beautiful Bill" by July 4 will succeed remains to be seen.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
