Executive Summary
In its current form, the TOB3 appears to take a hardline against solar, wind, storage and hydrogen and the biggest winners are CCUS, nuclear and clean fuels.
First Look
The FEOC regulations proposed could undercut any future versions that would extend the tax credits and transferability. What many are concerned about is something equivalent to a full repeal of the tax credits. While natural gas-fired power plants may become competitive in such a scenario, they have their own supply chain and long-term policy shortcomings for investors to ponder.
The pending uncertainty and what could be the new normal if TOB3 is enacted will be the slowing down of all things power related. And if that’s the case, the wind, solar and storage technologies’ domination of the near-term queue composition, and state and corporate renewable goals, will continue. The investment community will adjust to life after TOB3 and find ways to finance these projects, albeit with much higher power purchase agreement prices. A full repeal could lead to ~25% higher power prices that would likely be passed on to the end consumer in their electricity bills directly rather than the indirect tax credit mechanism through which they were paid historically.
One Big, Beautiful Bill Introduction
As the 2024 election confirmed President Trump’s return to office, uncertainty gripped the energy markets. Key concerns centered around the future of tariffs and the potential rollback of tax credits introduced under the Inflation Reduction Act (IRA). At the outset of his second term, tariffs emerged as the primary source of apprehension among industry stakeholders. The impact that the tariffs would have on global supply chains and costs dominated the conversation. Although many in the energy industry still had their eye on the pending 2025 reconciliation process1 for taxes, there was optimism that the that energy tax credits received in President Trump’s first presidency, paired with the fact that almost 80% of these tax credits went to Republican jurisdictions, would mean that there would only be some minor changes on the energy tax credits. But then, enter The One, Big, Beautiful Bill (TOB3).
The House Ways and Means Committee Version
On May 9, 2025, the House Ways and Means Committee marked up TOB3, the necessary first step for any tax legislation, as all tax bills must originate in this committee. However, the bill still faces a multi-step legislative process: it must pass the full House, proceed through Senate committees, and gain approval from the full Senate. Finally, any differences between the House and Senate versions must be reconciled before the bill can be sent to the President for signature.
The initial version from the House Ways and Means committee was the starting point. The exclusion of a full retroactive repeal of the IRA’s tax credits in the initial proposal was a reassuring development for wind, solar, and storage developers who commenced construction prior to the end of 2024.
In the House Ways and Means version, the legacy Production Tax Credit (PTC) (§45) and Investment Tax Credit (ITC) (§48) were left alone meaning any projects that started construction last year were afforded all the tax credits they were due in the IRA. Those that rushed to get projects under construction for tax purposes were able to breathe a sigh of relief.
The tech-neutral PTC (§45Y) and ITC (§48E) that took effect this year were amended, however. These credits were supposed to start phasing out at the earliest in 20322 under the IRA. The House Ways and Means mark-up of the TOB3 had them starting to phase out in 20283 instead and would change a key provision of safe harboring the credits for those who started construction for tax purposes in that year to those that started operations in those years. Transferability (6418) was also repealed, but with a transition period. Transferability would no longer be allowed if the project began construction after the second anniversary of the enactment of TOB3.4,5 Transferability was a crucial component of the IRA and allows for the sale of tax credits for cash, which creates a second market for the monetization of these credits outside of the traditional tax equity market. Given that the tax equity market is of a finite size and limited to very sizeable counterparties,6 transferability was key to ensuring that a new avenue of monetizing the credits was available by making it accessible to companies with more modest tax liabilities.
While not without shortcomings, the proposed provisions were generally viewed as a constructive starting point compared to earlier, more restrictive proposals. A key area of concern, however, was the introduction of the Foreign Entity of Concern (FEOC) rules. These rules impose limitations on eligibility for energy tax credits for entities classified as Prohibited Foreign Entities (PFEs), Specified Foreign Entities (SFEs), and Foreign-Influenced Entities (FIEs).
The statutory language surrounding these classifications has raised concerns due to its ambiguity, which may complicate compliance efforts in the absence of detailed guidance from the Internal Revenue Service (IRS) and the Department of the Treasury—both of which are currently facing resource constraints.
Although the House version of the bill includes these provisions, there is an expectation that the Senate may take a more measured approach to their implementation. The intent behind the FEOC rules appears to be the prevention of foreign dominance—particularly by China—in critical mineral supply chains and clean energy technologies, while safeguarding U.S. taxpayer investments.
Nevertheless, given the current global supply chain dynamics, particularly China’s significant role in solar, storage, and advanced manufacturing sectors, the FEOC restrictions may present near-term challenges for domestic developers and manufacturers. The practical impact of these rules will depend heavily on how they are ultimately interpreted and enforced.
The Final House Version
Early on the morning of May 22, the House passed its final version of the TOB3 which required that the tech-neutral PTC (§45Y) and ITC (§48E) must be under construction for tax purposes within 60 days after the TOB3 is enacted and they must be placed in service by the end of 2028 to qualify. In other bad news, the FEOC rules were not made any clearer. Projects that were under construction by the end of 2024 and claimed the legacy PTC (§45) and ITC (§48) remained unimpacted.
Current State of Affairs and What Is Next
Now that TOB3 has passed the House, the Senate will start its process. Proponents of the energy tax credits are hoping those amendments are favorable. The Senate is hoping to pass TOB3 by July 4, but most experts believe this will bleed into August.⁷ Afterwards, any differences between the House and Senate versions will have to be reconciled before it makes its way to President Trump’s desk for final signature.
Enverus Take
For the time being, the rush is on for developers that have near-term projects start construction between now and 60 days from when President Trump signs TOB3. The lobbying of the Senate will likely focus on improving the following provisions:
- Lengthening the tech-neutral PTC (§45Y) and ITC (§48E).
- Lengthening transferability (6418).
- Simplifying the FEOC rules.
As it stands today, the TOB3 has wide-reaching implications for clean energy projects. Any changes to the tech-neutral PTC (§45Y) and ITC (§48E) will likely lead to higher power prices necessary to meet return thresholds for investors. Should these be extended, without a matching extension for transferability, the tax equity market would be stretched thin. The potential inability to monetize those credits would make the capital stack inadequate for a competitive rate of return, which would limit the projects that can be brought online. Even with the extension of both the tech-neutral credits and transferability, a confusing FEOC implementation could lead to uncertainty that would further hinder investor sentiment. Even in the worst-case scenario, as it sits today, there are still certain things that must be considered about the impending cliff for the tech-neutral tax credits that would impact wind, solar and storage projects. Should there be a full repeal of these tax credits, the power purchase agreement pricing will likely need to be much higher for these projects. This would be necessary to finance debt and get to an acceptable equity rate of return threshold. Today, tax credits are in essence how the public subsidizes its own electricity prices. It should be expected that the power price increases from removing tax equity financing from the capital stack will be passed directly to the consumers. Furthermore, the implications of tariffs on supply chains and costs will only exacerbate this reality.
Based on Enverus analysis, the LCOE for solar from a full repeal of the tech-neutral PTC (§45Y) and ITC (§48E) would increase around 22%-25%. It is worthwhile to consider why this is the case when the ITC (§48E) is at 30%.8 In essence, the tax credits are translated into a part of the capital stack at a discount in the 7%-8% range by tax equity investors. The assumption would be that this tranche of capital is replaced by debt, at a 5%-8% interest rate.9
This simple economic fact has several implications. There may certainly be a period of slowdown as the developers, offtakers, and financiers adjust to the new normal for power prices. However, at some point, the show must go on.
The load growth (from electrification, data centers, crypto miners, onshoring of manufacturing, etc.) and pending retirements of aging thermal units require more new build generation. Although some of those retirements may be postponed as a stop-gap measure, the load growth still necessitates new build capacity moving forward. Wind, solar and storage are still the technologies with the shortest development times; and the levelized cost of electricity (LCOEs) necessary in a new, no tax credit environment will be competing with thermal new builds neck and neck. When considering tariff-related cost increases, it does certainly tip scales in natural gas’ favor. However, it will be interesting to see what this might mean for natural gas prices as demand balloons further alongside data centers and LNG exports.10
A full repeal, as proposed in the House final bill would certainly seem to support natural gas-fired generation. However, it is worth noting that new natural gas plants have their own issues. The projects that are in the study process and have secured turbines are currently advantaged. The demand for turbines with the data center boom has squeezed the market and lead times are several years. Additionally, getting new projects into the queues and through to interconnection agreement also requires several years. Therefore, any new incremental increase in natural gas-fired power plant capacity additions would realistically reach commercial operations post this administration’s term. This causes its own uncertainty for investors as this long-term thermal capacity could be vulnerable to future changes in policy.11
Even in an environment where the tech-neutral tax credits and transferability are extended, a complex FEOC implementation would be detrimental to investment. The uncertainty that would result from the lack of guidance around the interpretation of the legislation would hamstring investment and debt financing as it may lead to an inability to validate eligibility for credits. Even those projects that could start construction for tax purposes before the 60 days after TOB3 would face challenges in their negotiations with financiers on the value of the safe harbored credits since they would still need to comply with the FEOC regulations. Therefore, the implementation of the FEOC in its current form is practically untenable.
It is also worth noting that some goals aren’t just federal; most of the clean energy and environmental policy is driven at the state level. To date, 29 states and the District of Columbia have Renewable Portfolio Standards (RPS) with 16 of those goals that are 50% or higher and 4 at 100%. Additionally, there is still strong corporate demand for clean power with the big tech companies looking to move towards 24/7 clean energy matching. Therefore, we expect that wind, solar and storage buildout will continue, albeit at a pace that will be dictated by how the uncertainty shakes out and investor sentiment.
Below are details regarding the impacts of the final version of the TOB3 that passed the House on various energy-related tax credits. The header color scale indicates winners (green) to losers (red).
Production Tax Credit (PTC) (§45) and Investment Tax Credit (ITC) (§48)
PTC and ITC claimed under the legacy §45 and §48 are not impacted by TOB3. Therefore, any projects that are currently operating or were under construction for tax purposes by the end of 2024 are not impacted.
Tech-Neutral Production Tax Credit (PTC) (§45Y) and Investment Tax Credit (ITC) (§48E
Under the IRA, these tech-neutral tax credits were set to apply for projects that are placed in service from 2025 onwards and would not start phasing out until at least 2032.12 They could also be safe harbored by starting construction for tax purposes.
With the TOB3, projects will no longer be able to claim these credits unless they:
- Start construction for tax purposes within 60 days of the inaction of the TOB3 and
- Are placed in service by the end of 2028
Advanced Manufacturing Production Tax Credit (§45X)
The TOB3 would end the tax credits on:
- Wind equipment sold after the end of 2027.
- Solar and storage components and critical minerals after a two-year phase out ending in 2031.
Carbon Capture Tax Credit (§45Q)
The TOB3 makes no change to these credits.
However, they are subject to the FEOC and transferability changes.
Nuclear Power Tax Credit (§45U)
The TOB3 extends the credit at its full value through 2031.
Transferability is available throughout the timeframe, but FEOC regulations do apply.
Hydrogen Production Tax Credit (§45V)
The TOB3 repeals the tax credits for hydrogen facilities that are not under construction for tax purposes by the end of 2025.
Clean Fuel Production Tax Credit (§45Z)
The TOB3 extends the credit at its full value through 2031.
The fuel would have to be exclusively derived from North American feedstock and transferability and FEOC regulations do apply.
Transferability (§6418)
The TOB3 does not impact the transferability of tax credits claimed under §45, §48, §45Y, §48E, and §48C. The §45Q credits can utilize transferability if they are under construction for tax purposes within two years after the TOB3 is enacted. The rest of the tax credits can only be sold to other companies for cash within two years after the TOB3 is enacted.
Direct Pay (§6417)
The TOB3 makes no change to direct pay.
Foreign Entity of Concern (FEOC) Regulations
The TOB3 brings FEOC restrictions to those projects that are claiming the §45Y, §48E, §45X, §45Q, §45Z, and §45U credits.13
For the §45Y and §48E there is a project-level restriction and an entity-level restriction that gets more onerous from 2026 to 2028. No tax credits can be claimed on projects that start in 2026 if any material assistance14 is received from a prohibited foreign entity (PFE).15 Starting in 2026, no tax credits can be claimed by entities that are considered a specified foreign entity (SFE).16 Furthermore, starting in 2028, no tax credits can be claimed by a foreign-influenced entity (FIE).17
Disclaimer: The above analysis is provided for general informational purposes only and reflects the author’s interpretation of proposed legislation as of the date of publication. It is not intended to serve as legal, financial, or investment advice, and should not be relied upon as such. Readers are encouraged to consult with qualified legal or financial professionals regarding how any legislative developments may affect their specific circumstances.
1 A reconciliation process allows for a budget bill to be passed with a simple majority in both the House and the Senate. The reconciliation process, ironically, was what was used by the Democrats to pass the Inflation Reduction Act (IRA) as well.
2 The credits were expected by many analysts to start phasing down sometime in the mid-2040s as the provision was that it would take effect as the latter of 2032 or when certain decarbonization goals were met.
3 The proposed step down would multiply the credits by 80% for those placed in service in 2029, 60% for 2030, 40% in 2031, and 0% thereafter.
4 Applied to 45Q, 45Y, 48E, 48(a). 45Q was still eligible for direct pay even if the project was placed in service after the second anniversary of TOB3’s enactment.
5 The initial changes proposed by the House Means and Ways version to many of the other credits are not discussed here for brevity. They are considered in the next section when looking at the final version that passed the House.
6 The traditional tax equity market is roughly $20B-$25B in size and dominated by institutions and companies with massive tax liabilities like banks and large corporates.
7 It is important to keep in mind that TOB3 is not only an energy tax bill, but a broader tax bill that has many components that must go through Senate scrutiny.
8 This is assuming that the project did not qualify for any of the bonus adders but did meet prevailing wage and apprenticeship requirements.
9 This is, of course, assuming that there is appetite to finance more of the capital stack with debt and at similar rates and it does not take into consideration any tariff-related cost increases.
10 A higher cost fuel input future for natural gas fired power plants could keep the two technologies neck and neck again.
11 However, there could be a path towards building these plants with CCUS technology. The carbon capture credits (§45Q) were largely unchanged.
12 The credits were expected by many analysts to start phasing down sometime in the mid-2040s as the provision was that it would take effect as the latter of 2032 or when certain decarbonization goals were met.
13 Only the impacts of FEOC on certain credits are discussed here for brevity.
14 Material assistance refers to the use of any components that are extracted, processed, recycled, manufactured, assembled, or used any design or intellectual property from a PFE. Some exemptions for subcomponents are included in the TOB3, but not detailed here for brevity.
15 A PFE covers entities with ties to China, Russia, North Korea, or Iran. These ties are further quantified in the TOB3 but not detailed here for brevity.
16 A SFE is any company owned more than 50% by China, Russia, North Korea, or Iran or is organized or has its principal business in those countries. It also specifically includes CATL, Gotion, BYD, EVE Energy Company, Hithium Energy Storage Technology, companies on the OFAC list or companies that make products that benefit from Uyghur forced labor in the Xinjiang province.
17 At this point, ownership restrictions drop to lower percentages to qualify as FIE and contractual relationships with SFEs also become problematic.
