The new energy credit landscape: Fast changes, big opportunity

With the One Big Beautiful Bill Act (OBBBA) in effect, familiar energy tax credits remain, but don’t mistake continuity for simplicity. The new rules — compressed timelines, foreign entity restrictions and additional compliance obligations — are reshaping what you as a tax leader should prioritize to capture value. With the new energy credit guidelines, time isn’t just money — it can affect eligibility. There are plenty of opportunities, but you’ll want to move fast.  

Meaningful incentives to capture cash flow and accelerate your company’s energy transition initiatives are still available. Bonus multipliers tied to prevailing wage and apprenticeship (PWA) remain intact with the potential to boost eligible credits by 500% or even more when stacked with bonus credits for satisfying requirements for domestic content or other location-based incentives. These incentives are an essential element of any investment in energy transition, representing one of the most accessible ways to enhance project ROI.  

Let’s walk through some of the opportunities and the potential obstacles. From compressed timelines and foreign entity restrictions to documentation and due diligence requirements, you’ll get practical tips you can use to prepare and respond. 

OBBBA didn’t dismantle the clean energy tax regime expanded by the Inflation Reduction Act of 2022 but instead recalibrated it with changes that come with real consequences.

• Tighter deadlines to start construction and place projects in service

• Strict rules prohibiting involvement of foreign entities of concern (FEOCs)

• Tighter due diligence requirements for transferable credits, especially those involving:
  • Foreign-owned entities
  • Complex supply chains (e.g., solar, wind and EV sectors)
  • Manufacturing incentives with heightened scrutiny

• Tougher requirements for bonus credits, especially around domestic content thresholds

Delay action and you risk missing credits, increasing the risk of recapture or leading you to create financial models with assumptions that no longer reflect tax reality. Here are some of the revisions you may want to consider.

• Credits terminate for wind and solar facilities placed in service after December 31, 2027. However, if construction begins before July 5, 2026, then wind and solar facilities generally may qualify for clean electricity credits when placed in service before January 1, 2030.

• Advanced manufacturing credits (Section 45X) for wind components will no longer apply to components produced after Dec. 31, 2027.

• The law increases the Section 48D advanced manufacturing credit rate from 25% to 35% for property placed in service after Dec. 31, 2025.

• It also extends availability of the Section 45Z clean fuel production credit by two years and updates the emissions rates for transportation fuel produced after December 31, 2025.

• Multiple incentives and credits for clean vehicles, residences, and buildings generally sunset over the next year.

• These compressed timelines introduce new urgency into capital planning project execution.

What this means for you:

• Review project timelines to validate whether the dates for when construction begins or property will be placed in service to meet the new eligibility requirements.

• Recalibrate tax equity models. Adjust the internal rate of return and credit projections to help avoid making outdated assumptions that overstate the value of future credits.

• Pinpoint opportunity zones. Some bonus credits (e.g., for energy communities and low-income census tracts) could help close viability gaps.

The biggest shift may be the restriction on FEOCs. These are entities tied to specific governments that are now strictly prohibited from benefiting from energy credits or controlling or materially assisting in credit-eligible projects. The law places restrictions on prohibited foreign entities that fall into two categories.

• Specified foreign entities: Entities owned or controlled by governments of concern (e.g., Russian-state owned or influenced), others on US government watchlists

• Foreign-influenced entities: Entities considered to be under significant control or influence of a specified foreign entity, based on:

  • An evaluation of board appointment authority
  • Thresholds of ownership and debt holdings
  • Payment streams that provide effective control to specified foreign entities or related parties

Under these rules, foreign-influenced entities can exist without majority ownership, and effective control may surface in governance rights, financing arrangements or contractual leverage that give an FEOC the ability to influence operations, veto decisions or dictate supply sources. This means you could fall within scope if:

• A minority foreign investor has board appointment rights

• A long-term licensing agreement gives a foreign licensor effective veto power over your IP use

• A debt covenant with a foreign lender restricts business activity unless you meet certain conditions

The material assistance concept includes supply chains, intellectual property licensing, subcomponents and services such as project maintenance contracts. Any applicable payment to a FEOC within 10 years of placing the project in service can trigger 100% recapture of clean energy investment credits (Section 48E).

What this means for you:

• Integrate FEOC screening into procurement. Work with supply chain, legal and sourcing teams to confirm compliance not only with direct counterparties but also with upstream suppliers and licensors — at every stage.

• Map effective control and examine payment steams. Go beyond equity ownership tests to identify governance rights, financing arrangements and service contracts that may confer indirect influence. Overlay this with a full analysis of outbound payments over the 10-year credit horizon.

• Adjust compliance. Modify credit documentation to address the new limitations precluding foreign involvement. Incorporate contract monitoring and retain records demonstrating payment-stream diligence.

You can still turn energy tax credits into assets through direct pay and transferability, but not to FEOCs. The mechanisms come with more scrutiny and fewer safe harbors.

Tax-exempt entities (including state and local governments, tribal authorities and nonprofits) can still choose direct pay to convert energy credits into cash payments from the government. But additional reporting and FEOC documentation may be required to validate eligibility. Compliance protocols are more rigorous. Taxpaying entities still have access to three key credits they can monetize through direct pay — clean hydrogen production (Section 45V), carbon capture (Section 45Q) and advanced manufacturing production (Section 45X).

Taxable entities can still sell credits but must verify buyer eligibility and maintain sufficient documentation to withstand IRS scrutiny. Fail to conduct robust diligence on credit purchasers and you could disqualify the credit or trigger recapture. Validation includes documenting the transaction under new IRS compliance protocols and verifying that the buyer is not an FEOC. You’ll also need to track the downstream use of credits for potential recapture implications. Misstatements could result in penalties.

What this means for you:

• Implement monetization strategies that balance cash flow generation with compliance safeguards against FEOC limitations.

• Develop a buyer qualification framework to screen credit purchasers, transferees and project partners that aren’t prohibited parties.

• Coordinate with finance and controllership to accurately reflect credit sales for federal and state income tax purposes and financial reporting.

Transferability and direct pay offer opportunities to secure cash flow, but meeting PWA requirements can boost your project’s value by multiples — five times the base credit, to be exact. While the potential rewards are high, so are the compliance standards.

Qualified apprentices must perform an applicable percentage of total labor hours, while meeting specified apprenticeship ratios, with contractors and subcontractors participating in the apprenticeship requirements. You’ll need to determine which workers are in scope and how much to pay them. That can take time depending on the number of workers, the types of jobs and the size of the project. When it comes to apprentices, your company may have a tough time finding hires. There is a good-faith exception, but that requires additional recordkeeping and attention.

Finally, full documentation is required. It’s important to leverage technology to build effective, streamlined compliance programs. Reporting requires both a high level of detail as well as a time horizon that can span 10 years or more beyond construction, depending on the project.

What this means for you:

• Work with project sponsors and human resources to validate wage classification and across construction phases, contractor tiers and apprentice ratios.

• Engage with contractors before the project begins to confirm compliance requirements and sourcing. Remember, projects that source required components domestically may qualify for a domestic content bonus of up to 10%.

• Establish clear audit trails to support multiplier claims in an IRS review.

The refinements OBBBA made continue to allow energy credits to provide powerful pathways to value. Heightened scrutiny, new certifications and strict disqualification triggers require enhanced diligence. Tax is now at the heart of energy investment strategy, and the path forward is clear: Get to the table early, lead with precision and integrate tax compliance into the full life cycle of energy investments.

Your next steps? Here are a few:

• Assess credit monetization opportunities early. Evaluate which projects in your pipeline may qualify for credits and determine whether direct pay or transferability are options that offer the best value based on your company’s tax profile.

• Review counterparty risk rigorously. Document to certify your project isn’t connected to FEOCs.

• Invest in automation for tracking. These tools are essential for PWA reporting and long-term credit eligibility.

• Build a cross-functional strategy. Align tax, finance, sustainability and operations teams.

• Monitor evolving rules — including Treasury and IRS guidance — and stay agile. Establish a governance process for change management and stakeholder communication.