The Reconciliation Bill & Clean Energy Tax Credits: What Solar Developers and Landowners Need to Know

On July 4, 2025, President Trump signed the so-called “One Big Beautiful Bill Act” into law. The name may be saccharine, but the consequences for solar developers are anything but. The bill rewires clean energy tax incentives, accelerates phase-outs for wind and solar, introduces complex Foreign Entity of Concern restrictions, and muddies the waters around longstanding “beginning of construction” safe harbor rules. For developers, tax equity partners, and landowners, it’s a new landscape, full of urgency, uncertainty, and strategic opportunity.

Here at AC Power, we have been closely following how changes to the ITC in particular could impact project development timelines as it relates to distributed generation solar and storage projects. We are working with landowners and investors to ensure that we are properly navigating the updated landscape to continue bringing our projects to fruition.

Here’s what you need to know.

Section 45Y and 48E: The Technology-Neutral Core

The Inflation Reduction Act introduced “technology-neutral” tax credits under Sections 45Y (Production Tax Credit) and 48E (Investment Tax Credit). These credits replaced legacy 45/48 credits and became available for new projects placed in service from 2025 onward — as long as those projects generate zero or negative lifecycle greenhouse gas emissions.

The new reconciliation bill drastically moves forward the expiration date for these credits, which previously ran through the mid-2030s.

To qualify for full 45Y/48E credits, solar and wind projects must either: 

• Start construction within 12 months of the bill’s enactment (i.e., by July 4, 2026), or

• Be placed in service by December 31, 2027.

This will likely lead to a cascade of developers racing to begin construction on early-stage projects (in the eyes of the IRS) within the next year. Projects that can’t meet that deadline with have another year and a half to plug into the grid, a manageable timeline for distributed generation projects but more of a hurdle for utility- and hyper-scale projects.

As a result, many developers will likely look to leverage existing safe harbor provisions, which would allow up to four years to complete the project following the beginning of construction.

However…

Executive Order and the Coming Crackdown on Safe Harboring

Just three days after signing the bill, President Trump issued an executive order that could reshape how the IRS evaluates whether construction has truly begun. Historically, developers relied on two tests:

1. 5% Test – Incurring 5% of total project costs (e.g., through equipment payments).

2. Physical Work Test – Beginning “significant physical work” at the site.

The EO calls on Treasury to issue guidance within 45 days to “restrict the use of broad safe harbors unless a substantial portion of a subject facility has been built.”

That’s a not-so-subtle threat to the industry’s reliance on safe harboring practices, like equipment warehousing or minimal site work, to lock in tax credit eligibility. The fear in developer circles is that Treasury could raise the threshold for the 5% test — say, to 51% — or limit it only to projects that have begun “substantial construction.”

AC Power is closely monitoring how the Treasury and IRS are responding to this Executive Order to ensure our projects progress in a timely manner and remain in compliance with tax credit eligibility.

The FEOC Maze

The thorniest part of the bill is the codification of the Foreign Entity of Concern, or FEOC, restrictions.

Starting in 2026, projects that rely too heavily on Chinese-sourced equipment, financing, or contracts could become ineligible for 45Y/48E, 45X (manufacturing), or even transferable tax credits.

There’s a three-step compliance process:

1. Material Assistance: Projects must prove that a specified percentage (starting at 40% for solar in 2026) of their equipment cost does not originate from FEOCs.

2. Taxpayer Identity: You can’t be more than 25% owned or 15% debt-financed by FEOCs.

3. Effective Control: Even certain contracts (e.g., long-term services, licensing with >10-year royalties, or exclusive maintenance rights) can disqualify a project.

The language is both punitive and intentionally vague. Developers must now audit not just their suppliers, but their suppliers’ suppliers, and possibly their lawyers’ cousins’ escrow agents.

The good news? Projects that begin construction by December 31, 2025 are exempt from the material assistance rules. Cue the land rush.

Storage’s Quiet Victory

In the background, energy storage emerged relatively unscathed — and even bolstered.

Storage projects are granted a generous construction start deadline of December 31, 2033, with gradual phase-downs (75% credit in 2034, 50% in 2035). FEOC restrictions still apply starting in 2026, but the long runway gives developers time to adjust supply chains.

Meanwhile, manufacturing credits under Section 45X for battery modules, inverters, and mineral processing remain robust, albeit with new stacking limits. Notably, wind manufacturers lose 45X credit eligibility entirely after 2027.

Bonus Credits, Still on the Table

Despite the headwinds, bonus credits for domestic content and energy communities remain intact, with one notable fix. Earlier drafts of the OBBB originally froze the required domestic content threshold at 40% for ITC projects, even as PTC projects saw it rise to 55%. The OBBB corrects this inconsistency: now both follow the same rising standard. But projects started between January and June 2025 can still qualify at the 40% mark.

Bonus Depreciation and MACRS Changes

Projects qualifying for 45Y/48E remain eligible for 5-year MACRS depreciation. But now, developers also gain access to 100% bonus depreciation for property acquired after January 19, 2025. That means you can write off the full cost of your equipment in year one.

For developers, bonus depreciation sweetens the deal, especially for projects with long lead-time components. But don’t rely on this alone, as credit eligibility should still drive timeline decisions.

Transferability and Recapture Risks

Transferability of credits remains intact — good news for developers leveraging tax equity markets. But here’s the twist: credits transferred to FEOC-tainted entities can be disallowed, and in the case of ITCs, there’s now a harsh 10-year recapture risk.

If, anytime within 10 years of a project being placed in service, you make a payment to a prohibited entity that gives it “effective control,” the entire ITC must be repaid to Treasury. For developers thinking about selling ITCs in the transfer market, this is another consideration when auditing your supply chain.

What It Means for Developers

Developers now face a massively compressed window to secure tax credit eligibility, with a construction sprint reminiscent of the end-of-year flurries from the PTC’s old boom-and-bust days.

Here’s what happens next:

• Start construction early. Get your 5% spend lined up, or, better yet, break ground for real.

• Audit your supply chain. Reevaluate your supply chain for FEOC exposure, especially Chinese O&M agreements and royalty-bearing licenses.

• Clean your contracts. Any hint of FEOC control, especially on long-term ops or IP, could nuke your credit.

• Move fast on interconnection. Projects stuck in queue limbo risk missing deadlines and losing eligibility.

What This Means for Landowners

Landowners also face a narrowing window to maximize the value of their sites. Sites that can host solar or storage — and be shovel-ready within the next year — will likely take priority over sites with longer development timelines due to necessary remediation work, local politics, or other variables. Landowners with closed landfills or other industrially-impacted sites that have been cleaned up should seize this opportunity to lock in a land lease or sale to ensure that the tax credit value is baked into the price.

AC Power specializes in exactly these types of projects, and we expect:

• Increased developer interest in pre-permitted or environmentally cleared parcels

• More aggressive timelines for site control, permitting, and interconnection

• A premium on sites that can be ready by 2025–2026

In other words, if you have a site with potential, now is the time to engage. The window is short, the incentives are generous, and the risk of delay is real.

Looking Ahead

The reconciliation bill may have narrowed the runway, but it didn’t eliminate the opportunity. Developers that move fast, structure carefully, and build partnerships rooted in transparency and compliance can still benefit from robust incentives.

At AC Power, we’re responding by:

• Accelerating timelines for key projects

• Engaging suppliers and owner-operators navigate FEOC rules

• Doubling down on community-based and brownfield development strategies

We believe that every challenge is an opportunity in disguise. The new law raises the bar, but it also gives a clear incentive to act boldly, smartly, and soon.

Have a site that might qualify? Want to know how this applies to your project? Reach out at info@acpowerllc.com or contacting us on our website.