Strategic considerations for launching your energy projects in 2025
Considering a new clean energy project? Explore shifting deadlines and updates
As clean energy tax credits and incentives continue to evolve, organizations must make timely decisions regarding the initiation of energy projects that impact eligibility under various provisions. Originally established deadlines, along with recent updates from the law commonly referred to as the One Big Beautiful Bill Act (“OBBBA”), may present compelling reasons to begin energy projects in 2025. Below are the key considerations driving this strategic timing.
Accelerated phase-outs and terminations
A key consideration for timing of launching energy projects is the accelerated phase-out of certain clean energy tax credits. OBBBA has reduced some of the incentives introduced by the Inflation Reduction Act of 2022 (“IRA”), with specific wind and solar credits set to phase out. In particular, if construction on a wind or solar project begins after July 4, 2026, and the project is not placed in service by December 31, 2027, no tax credit is available. For tax-exempt entities, starting construction on projects over 1 megawatt in 2025 may allow organizations to qualify for eligibility without meeting domestic content requirements. While failing to meet domestic content requirements for projects commencing construction in 2024 and 2025 resulted in a direct pay tax credit haircut, tax-exempt owned projects commencing after 2025 will need to meet these requirements (or qualify for an exception) to be eligible for the direct pay credits at all. Notably, the Domestic Content threshold will increase to 50% for projects starting construction in 2026, up from 45% for those beginning in 2025.
New deadlines and compliance requirements
New guidance also results in wind and solar projects potentially having different beginning of construction rules applicable depending on when construction begins in 2025. Solar and wind projects commencing construction on or after September 2, 2025 can establish the beginning of construction using only the physical work method and can thereafter only demonstrate continuity under a “continuous program of construction.” Rules applicable prior to September 2, 2025, afforded more flexibility in establishing beginning construction and continuous construction. Projects commencing on or after September 2, 2025, do, however, still benefit from the 4-year Continuity Safe Harbor (under which continuous construction will be assumed if the project is placed in service within 4-years) if commenced prior to July 4, 2026.
Navigating prohibited foreign entity restrictions
A critical consideration for starting energy projects in 2025 is the anticipated implementation of prohibited foreign entity restrictions. These forthcoming rules are expected to restrict eligibility for federal tax credits if projects involve certain foreign ownership, control, or supply chain components, including from entities that may be deemed to pose national security risks. Organizations will need to navigate complex requirements related to ownership, control, debt, and supplier relationships as a prerequisite for credit eligibility. By commencing construction before these restrictions are applicable, businesses can help mitigate the risk of retroactive disqualification. In particular, the restrictions related to the prohibited foreign entity ownership and effective control of wind and solar projects apply to tax years beginning after July 4, 2025, and the rules and restrictions around prohibited foreign entity providing “material assistance” to a wind or solar project apply to projects beginning construction after 2025. Early action also allows additional time to review and adjust supply chain arrangements, contract terms, and project structures to enable future compliance. Proactive planning in 2025 may reduce uncertainty and help safeguard project economics against regulatory changes anticipated in 2026 and beyond.
State-level opportunities
While some federal credits are being reduced or made more restrictive, many state-level credits and incentives remain robust and independent. Many states have introduced new funding to support clean energy projects, offering potential tax savings. Initiating projects in 2025 may enable businesses to take advantage of these state incentives, which may include property tax abatements, sales tax credits, and grants for clean energy initiatives.
Conclusion
Strategic timing is essential for navigating the changing landscape of clean energy tax credits and incentives. By launching energy projects in 2025, organizations may be able to enhance tax benefits, reduce compliance burdens, and plan for state-level opportunities. As the industry adapts to these changes, proactive planning and early project initiation can be crucial for enhancing returns on investment through available incentives.
