The U.S. House of Representatives has proposed a new tax reform draft that adjusts clean energy subsidy provisions, affecting the structure of the Inflation Reduction Act (IRA).

According to the draft, the 30% tax credit for residential solar projects (Section 25D) will expire at the end of 2025; meanwhile, the Section 48E credit—applicable to large-scale solar and energy storage projects—will begin phasing out annually starting in 2029. Additionally, the Section 45X advanced manufacturing credit will terminate earlier, at the end of 2031, and explicitly prohibits companies affiliated with 'foreign entities of concern' (FEOCs) from receiving such credits. The FEOC definition covers enterprises under substantial foreign ownership or reliant on critical foreign technologies. The draft also includes abolishing the tax credit transfer mechanism, eliminating several subsidies—including clean hydrogen (Section 45V), energy-efficient homes (Section 45L), and clean vehicles (Section 45W)—and plans to reclaim portions of climate-related funding not yet disbursed. Despite the broad scope of changes, initial market reactions have been positive. Analysts view the draft not as a wholesale repeal of the IRA, but rather as implementing a 'moderately front-loaded' phaseout, thereby easing prior market concerns about extreme policy reversal. U.S. clean energy stocks—particularly those heavily reliant on domestic revenue, such as Sunrun (RUN), First Solar (FSLR), and Shoals (SHLS)—have generally rebounded. The bill remains in early review stages and must still undergo Senate deliberation, where amendments are likely. Given that most policy adjustments take effect in 2026 or later, the policy orientation of the next presidential administration will be pivotal in determining its final trajectory. Summary of Key Changes in the Tax Reform Draft (May 2025 Edition) Policy Provision Revised Provision Original Provision Impact Section 25D (Residential Clean Energy Tax Credit) 30% credit for newly installed projects eliminated starting in 2026 Originally indefinite Negatively affects cash-purchase and loan-based residential solar models, impacting ENPH/SEDG Section 48E (Generic Solar & Storage Tax Credit) Phased withdrawal begins in 2029 Originally scheduled to end in 2032 Relatively moderate impact; residential third-party ownership (TPO) models like RUN may benefit Section 45X (Advanced Manufacturing Tax Credit) Terminates one year earlier (end of 2031); wind components lose eligibility after 2027 Originally slated for 25% annual phaseout beginning in 2032 Positively impacts U.S.-based manufacturers such as FSLR, SEDG, and ENPH FEOC Exclusion Mechanism Excludes component suppliers under foreign ownership or funding within two years No such restriction previously existed Clearly benefits domestic manufacturers like FSLR while excluding China-linked production lines Section 45Y (Clean Energy Production Tax Credit) Eligibility determined upon commercial operation; phased down from 2029 through 2031 Originally scheduled to begin phasing out in 2032 Provides predictability for project developers; modest impact Elimination of Tax Credit Transferability Corporate trading of tax credits abolished Previously allowed transfers at ~90–95% of face value Constrains liquidity-constrained small- and medium-sized project developers

Impact of the 'Big and Beautiful' (OBBB) Act on U.S. energy transition.

The OBBB Act imposes significant new restrictions limiting a project’s ability to generate tax credits when certain foreign entities of concern (FEOCs) are involved. These restrictions fall into two categories: (1) ownership- or control-related restrictions; and (2) restrictions tied to assistance received during construction. If an FEOC restriction incorporates a 'commencement of construction' concept, the OBBB Act draws upon longstanding IRS guidance, permitting project owners to commence construction by either incurring at least 5% of total project costs or initiating substantial physical work. 1. FEOC—Ownership Restrictions The first FEOC restriction generally prohibits project owners from claiming technology-neutral tax credits, advanced manufacturing tax credits, clean fuel production tax credits, and carbon sequestration tax credits in any taxable year if the entity generating the credit is either a 'specified foreign entity' or a 'foreign-influenced entity.' These restrictions typically apply to taxable years beginning after July 4, 2025, though restrictions related to foreign-influenced entities apply to clean fuel production tax credits only for taxable years beginning after July 4, 2027. Specified foreign entities should be relatively straightforward to identify. They include entities owned by the governments of China, Iran, North Korea, or Russia; entities owned by citizens of these countries or primarily operating in them; certain battery manufacturers; and other similar entities. An entity qualifies as foreign-influenced if: a specified foreign entity holds direct or indirect authority to appoint board members or senior officers; a single specified foreign entity owns more than 25% of its equity; one or more specified foreign entities collectively own 40% of its equity; or specified foreign entities collectively hold at least 15% of its debt. An entity is also considered foreign-influenced if, in a prior taxable year, it made payments to a specified foreign entity under an arrangement granting that entity effective control over the project (for technology-neutral tax credits) or over the production of any component (for advanced manufacturing tax credits). The concept of 'effective control' does not restrict eligibility for clean fuel production or carbon sequestration tax credits. Because effective control hinges on payments made in the prior taxable year, project owners must carefully review all contracts requiring payments—or recent payments—that could grant the counterparty any specific authority over component production, energy generation, or energy storage. Contractual rights allowing the counterparty to determine production volume or timing, restrict access to production-related data, dictate electricity off-take arrangements, or exclusively maintain or operate the project may constitute effective control. Licensing arrangements may also confer effective control—for instance, those specifying or directing materials/components used in the project, instructing operational management, restricting taxpayer use of licensed property, granting royalty rights exceeding ten years, or otherwise requiring the project owner to retain an operator designated by the licensor for more than two years. Finally, for projects claiming the technology-neutral investment tax credit (ITC), the OBBB Act mandates full recapture (100%) of the credit amount if payments conveying effective control are made within ten years after the project is placed in service.

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