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Navigating a maelstrom
The passage of the One Big Beautiful Bill Act ("OBBBA") in July 2025 marked a significant policy reversal for renewable energy—and only the start of a period of industry upheaval. Last month, the Treasury Department's guidance on the OBBBA's implementation further tightened the requirements to qualify for tax credits, most notably eliminating the "safe harbor" rule that allowed 5% of solar and wind project spending to stand in lieu of the start of physical construction. For all of us closely watching the trajectory of policy over the last year, the potential risks of the spring have now given way to the hard realities of the fall. This is no longer business as usual.
After three years of blue-sky expectations and growing project pipelines following the 2022 passage of the Inflation Reduction Act ("IRA"), the U.S. renewable power industry must learn to operate without the certainty of policy tailwinds, and against the headwinds of uncertain new restrictions.
With utility-scale solar and wind tax credits set to become constrained over the next several years, now on an accelerated timeline, developers must urgently reassess their project pipelines and suspend new origination activities. The focus has shifted to accelerating viable projects already close to construction, while mothballing or canceling those that no longer make economic sense under the current rules. Larger players may see an opportunity to shift from origination to acquisitions—bringing in mature projects that should qualify for incentives. Smaller players may benefit from being nimble, speeding up development to meet qualification milestones - if they can secure financing and meet new Foreign Entity of Concern ("FEOC") content requirements. Considering OBBBA's changes, it has become essential to revisit project economics and investment strategy.
Guidance from the U.S. Treasury and IRS in August established the Physical Work Test as the exclusive test for beginning-of-construction, but uncertainty remains, including the potential for further changes in law and guidance, along with potential uncertainty for securing permits.
The bright spot remains the seemingly insatiable demand for electricity, most notably driven by AI data centers. Capitalizing on this opportunity and weathering this industry maelstrom will require developers to undertake a careful and structured reconsideration of all strategies and processes.
The implications of tax credits on project economics
When the Inflation Reduction Act was introduced, solar energy was expected to produce more electricity per year by 2031 than all US coal-fired power plants in 2022. Renewable developers built project investment cases around the expectation of long-term IRA tax credits, and those incentives resulted in lower Power Purchase Agreement ("PPA") prices. As a result, 2023 and 2024 saw unprecedented solar, wind, and storage additions, with many developers extending robust project pipelines to the end of the decade.
Going forward, the OBBBA has fundamentally rewritten the economics of renewable energy development, with solar and wind projects facing a cliff of this support. Now, to be eligible for 100% federal tax credits, projects must be placed in service before December 31, 2027, or they must begin construction within a year of the OBBBA's enactment. Projects that were previously projected to qualify for tax credits could see drastically lower returns and may not attract financing, especially if there is concern that construction might not begin before these deadlines. These projects and their developers face a chicken-or-the-egg dilemma: they need financing, which depends on tax credits, but tax credits depend on siting, permitting, and actual construction, all of which require funding.
That bracing reality requires a re-evaluation of each project's investment decision, as well as a holistic look at project pipelines to identify where to fast-forward, where to pause, and where to stop altogether. In effect, developers face a binary decision: cancel projects, or accelerate them to capture the tax credit before becoming ineligible? For larger organizations with numerous projects spread across geographies, often each with its own investors and off-takers, the range of options expands—creating a complex quandary.
In rare cases, a technological pivot may also be an option. The OBBBA's preference of some generation types over others (notably storage, nuclear, and geothermal), raises the possibility of leveraging sunk permitting costs towards alternative technologies. Some companies may be able to seek diversity in areas still backed by the bill—like hydrogen, biofuels, and carbon capture—to hedge against policy changes. But the challenge of continuing with business as usual is significant. Already, more than $20 billion in clean energy investments were cancelled in the first half of 2025.
Navigating concerns over Foreign Entities of Concern (FEOC)
The FEOC provision in the OBBBA creates an additional layer of complication. It fundamentally reshapes equipment sourcing strategies, forcing renewables developers to both adapt to new suppliers and overhaul their oversight processes. While the industry broadly expected these rules to be relaxed from the initial House bill, final passage and the Treasury guidelines added stringent new requirements barring clean energy projects from claiming tax credits if they are owned, controlled, or materially supplied by entities linked to certain nations (notably China, Russia, Iran, or North Korea). This last-minute tack demonstrated resolve for cutting off supply chains for those nations—it also guaranteed near-term project disruption for developers.
Navigating FEOC concerns will not be easy. The provision operates through three mechanisms:
- Ownership-based exclusion, which makes projects owned by a Specified Foreign Entity or Foreign-Influenced Entity ineligible starting in 2026.
- Effective control rules, where licensing or contractual agreements that allow FEOC influence may disqualify projects, even retroactively.
- Material sourcing constraints require FEOC-sourced component costs to remain below decreasing thresholds.
The implications of these changes will ripple through project economics. Developers will have to shift to domestic or non-FEOC sources (potentially increasing costs). They will need to build new processes for ongoing transparency, and dramatically increase due diligence requirements. Ownership structures will need to be audited, contracts reviewed, and supply chains mapped—all while racing against tight deadlines that do not necessarily align with the tax changes. To qualify for credits under FEOC provisions, projects must begin construction by July 4, 2026, or be placed in service by December 31, 2027.
In many cases, developers will ultimately need to restructure ownership, while working within a reduced pool of credit purchasers (as FEOC-linked buyers are prohibited). The need is immediate and critical for developers to assess their exposure levels, enhance due diligence, and explore all potential sourcing alternatives. It is the regulatory equivalent of completing a puzzle in the middle of a hurricane.
Organizational change is inevitable
Given the magnitude of uncertainty that the OBBBA has introduced into the industry, a fundamental shift in the growth calculus of renewable energy firms is inevitable. In some lights, this is a swing of the pendulum following the rapid growth of the last half-decade. Many renewable companies have expanded through fragmented acquisitions, resulting in compounded overhead and administrative costs with duplicated functions and inconsistent systems. As this moment of industry turmoil accelerates, firms will be forced to confront these inefficiencies and rethink how SG&A expenses are structured and scaled.
M&A activity will increase
M&A activity may be a faster and more cost-effective path through the uncertainty. Rising costs from tariffs, labor inflation, and interconnection delays were already making organic growth less viable. The project economics of the post-IRA world increase that drag even further. For some firms, this could mean opportunity. Given that a large share of solar and wind projects depend on tax credits to remain competitive, disruptions are triggering distress and asset sales, creating an environment for consolidation. Private equity firms are actively pursuing renewable platforms with strong pipelines and established grid access, adding to the possibility of an M&A wave. For those who move decisively, there are likely to be first-mover advantages. Distressed or undervalued assets may also become opportunities before the market resets.
Going forward
Much has been made of the AI data center boom and its associated demand for electricity, but the industry had already been planning for increasing load and shifting generation. No doubt the arrival of the OBBBA era marks a shift away from the enthusiasm for carbon-free solutions of the last several years. With fewer renewable projects coming online (and increasing demand), there will inevitably be a shift to keeping fossil fuel energy sources longer—and, most likely, an increase in overall generation prices. Given these factors, further shifts in the economic models driving energy investment decisions may be on the horizon. Canceling projects and rolling up pipelines requires a clear understanding of the path from the specifics of the OBBBA to an individual decision point.
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