On June 16, 2025, the Senate Finance Committee released its version of the “One, Big Beautiful Bill” (OBBB) that would create a steep phase-out of renewable energy tax credits—notably, renewable energy companies would have to start construction on wind and solar projects before December 31, 2025, to receive 100% of the available tax credits. The reconciliation process is far from over, and there are further revisions expected to the text, but the Senate Finance Committee is the final committee in the Senate expected to release legislative text related to energy tax credits.

Its version of the bill includes the following provisions.

Wind and Solar Tax Credits Phase Out: The bill would rapidly phase out production tax credits (Section 45Y) and investment tax credits (Section 48E) for wind and solar projects. Qualified facilities that start construction in 2025 would be able to claim 100% of the tax credits available, but those that start construction in 2026 would only be able to claim 60% of the available credits. Facilities that start construction in 2027 would be able to claim 20% of the tax credits, and those that start construction after 2027 would not be able to claim tax credits. While this version of the bill is a slight improvement over the House’s bill, which required facilities to start construction within 60 days of the bill’s enactment, the proposed bill still represents a significantly accelerated phase-out compared to current law.

Battery Storage: Clean energy investment tax credit (Section 48E) stays in place for battery storage projects and steps down in the same manner and on the same timeline as geothermal, nuclear, and hydro.

Geothermal, Nuclear, Hydro: 100% of the clean energy production tax credit (45Y) and clean energy investment tax credit (48E) are available for these facilities if they start construction in or prior to 2033, then step down to 75% in 2034, 50% in 2035, and 0% in 2036.

Transferability: Unlike the House bill, the Senate draft text does not change existing tax credit transferability provisions.

FEOCs: The Senate bill incorporates the House’s requirement that to be eligible for credits, a taxpayer must not receive material assistance from Foreign Entities of Concern (FEOCs). However, the House did not define “material assistance,” and the Senate bill provides an objective definition of material assistance, dependent on ratio of cost of manufactured products or eligible components produced or manufactured by a prohibited foreign entity to the total cost of manufactured products or eligible components. In addition, taxpayers may obtain and rely on certifications from their manufacturers as to the content of products from FEOCs, unless they know or have reason to know that the certification is incorrect. Additionally, supply contracts executed prior to June 16, 2025, are exempt from the FEOC rules.

Hydrogen: The Senate draft would terminate the hydrogen production tax credit (45V) by the end of 2025.

Electric Vehicles (EVs): EV tax credits would terminate for new vehicles purchased more than 180 days after enactment and 90 days after enactment for used EVs.

Residential Solar and Wind: Like the House bill, the Senate’s draft text disallows tax credits for wind and solar facilities leased to residential customers.

The different Senate committees are completing their respective work on their version of a budget reconciliation bill, but the Senate Finance Committee’s text has the most important impact on energy provisions. These bills are being reviewed by the Senate Parliamentarian to ensure that they meet the rules against policymaking on the budget reconciliation, and she will strike provisions that are ruled not in order, although we expect the energy provisions to hold up to Senate Parliamentarian review. The Senate floor is expected to consider their combined budget reconciliation bill as soon as next week. Once the Senate passes the bill, the House and Senate will need to resolve the differences between their different budget reconciliations. They could do this by a formal conference committee to resolve the differences between the two bills. However, due to the self-imposed deadline that the President has set to sign this legislation into law, it may be more likely that they do informal negotiations to resolve the differences without formally appointing a conference committee. Under this scenario, the House and Senate would then ultimately need to pass the same budget reconciliation bill before the President can sign it into law.

Start of Construction

The OBBB effective dates for the energy credit provisions are in part triggered by whether the taxpayer has begun construction of the qualified facility by a particular date, such as December 31, 2025, to receive 100% of the tax credits available. The OBBB does not provide any particular guidance as to what constitutes beginning of construction. The Internal Revenue Service (IRS) will likely rely upon current outstanding guidance in defining what constitutes beginning of construction. 

In a series of notices, the IRS provided guidance regarding when construction has begun for purposes of both investment tax credits and production tax credits. In Notice 2013-29, the IRS provided that a taxpayer may establish that construction of a qualified facility has begun under either of two methods: 

1. a taxpayer may establish the beginning of construction by starting physical work of a significant nature, or
2. a taxpayer may establish the beginning of construction by expending at least 5% of the facility costs, which is referred to as the safe harbor method. 

In addition, under the Notices, a taxpayer must make continuous efforts or continuous progress toward completion once construction has begun. The Notices also make clear that a facility cannot flip between the physical work and 5% safe harbor tests for qualifying for beginning of construction. 

Physical Work of a Significant Nature 

Construction of energy property begins when physical work of a significant nature begins. Work taken into account in determining whether construction has begun includes both:

• work performed by the taxpayer; and
• work performed for the taxpayer by other persons under a binding contract that is entered into prior to the manufacture, construction, or production of the energy property for use by the taxpayer in the taxpayer’s trade or business (or for the taxpayer’s production of income). 

The Notices do not specify any quantitative measures as to what constitutes physical work of a significant nature, although the work must involve physical work with respect to tangible personal property and other tangible property used as an integral part of the activity to be performed by the energy facility.

• This includes property integral to the production of electricity but does not include property used for electrical transmission. 
• The Notices provide that roads that are integral to the facility are integral to the activity performed by the facility but would not include roads for ingress or egress. 
• If the work is performed by a third party, it must be performed pursuant to a written binding contract and cannot be with respect to property normally held in inventory. 

5% Safe Harbor Test

The Notices provide under the 5% safe harbor method that the construction of a facility will be considered to have begun on the date on which a taxpayer pays or incurs—within the meaning of Regulation § 1.461-1(a)(1) and (2)—5% or more of the total cost of the energy facility. 

• A taxpayer can acquire qualifying assets under a master contract to satisfy the test and such property can be assigned to a project if the transferee of the qualifying property is a related party to the project company, which generally requires at least a 20% ownership interest. 
• The total cost of the facility for purposes of the 5% safe harbor method are all costs properly included in the depreciable basis of the energy facility, which are the qualifying assets which are integral to the production of electricity. 

Continuity Requirement Safe Harbor

The Notices generally require a continuous program of construction or continuous efforts to advance towards completion of the facility. This test is based on all the relevant facts and circumstances and contains an exception for disruptions beyond the taxpayer’s control. If the energy facility is placed in service by the end of the fourth calendar year after the year in which construction began, the energy facility is deemed to have satisfied the continuity requirement.

Continuity Beyond Four-Year Safe Harbor

A taxpayer can satisfy the continuity requirement by establishing facts sufficient to demonstrate continuous construction or continuous efforts even if those efforts extend beyond the safe harbor period (beyond the fourth calendar year after the year in which the project started construction). Establishing continuous construction or continuous efforts is arduous, but possible. Energy companies will be more likely to successfully establish continuity if they implement a program for establishing continuity early in the process and diligently adhere to moving the project along and tracking in detail efforts to do so.

What This Means for You

Now is a good time for renewable energy companies to (1) audit project pipelines to identify projects with potential to establish start of construction in 2025, (2) carefully consider the potential diminishing lead time to begin fabrication of safe harbored clean energy equipment, (3) for early-stage projects that may extend beyond the safe harbor period, work with tax counsel to establish a rigorous program to track continuous construction or efforts to satisfy continuity requirements, and (4) assess their supply chains and existing contracts in light of potential FEOC rules.

We will continue to monitor this bill and any future amendments or revisions thereto as it advances through the legislative process. If you have questions regarding this latest rewrite and its implications for tax credits, please contact Jason Reschly, Anna Kimbrell, Robert Romashko, Doug Jones or your Husch Blackwell attorney.