'Changing the rules of the game': budget law, Trump order rock US solar sector

The US solar industry is scrambling to assess the impact on project finance and manufacturing after President Donald Trump signed a budget bill and executive order that severely limit renewable energy tax credits.

"It's a bad bill and it is a bad change to our country's energy policy," Tom Hunt, CEO of solar and energy storage developer Pivot Energy Inc., told Platts, part of S&P Global Commodity Insights, adding that the policy changes will decrease the deployment of new sources of energy at a time of increasing demand.

The budget reconciliation bill signed by Trump on July 4 accelerates the four-year phaseout of the 48E investment tax credit and 45Y production tax credit to begin in 2028, from 2032. The budget law also requires projects to either commence construction by July 4, 2026, or to be placed in service by the end of 2027 to receive the credits. If a project begins construction over the next year, it has four years to enter service.

Projects will also be subject to strict foreign entity of concern provisions that limit percentages of materials sourced from China, Russia, Iran and North Korea. China is a leading supplier of clean energy components.

The president's July 7 executive order directed the US Treasury Department to revise rules for renewable projects seeking federal subsidies, and seeks to eliminate the 48E and 45Y credits for wind and solar.

"It creates a lot of business uncertainty when tax credits are repealed in a really swift and draconian fashion," Hunt said.

Solar and storage projects take years, "so we can plan for changes, right? Tax credits can phase out and so forth, but we need time to adjust," Hunt added.

New timeline requirements also pose other challenges for developers.

"The new language around the 2027 placed-in-service deadlines for projects that begin construction a year after is really impossible because we don't control interconnection timelines with utilities; no projects do," Jeff Cramer, president and CEO of the Coalition for Community Solar Access, told Platts.

"It's essentially changing the rules of the game two-thirds of the way through it for the timelines for how you build electricity projects," Cramer said.

With investment tax credits going away over the next few years "that is going to drive a reduction in the amount of projects delivered to the market nationwide," Hunt said, adding that this will particularly impact states and markets with fewer solar resources or where state rules are less clear on connecting renewables to the grid.

Community solar will also be hit by the changes.

"It's certainly not good for energy affordability or community solar," Cramer said. "It could strand up to thousands of subscriber-driven community solar projects, which equates to billions of dollars in investment."

Manufacturing 'mixed bag'

Solar manufacturers, however, characterized the reconciliation bill as containing both positive and negative components for the sector.

"It was a mixed bag," Rob Gardner, vice president of congressional and regulatory affairs at the Solar Energy Manufacturers for America Coalition, told Platts. "On one hand, it conserved our solar manufacturing credits, 45X credits and enhanced postdepreciation, which are helpful for the production side of things. On the other hand, it did phase down the demand-side incentives, including the domestic content bonus."

Although the 45X advanced manufacturing production tax credit remains, the bill added a foreign entity of concern (FEOC) requirement for manufacturers, creating a challenge for those with supply chains or a corporate structure more reliant on FEOC countries. Gardner also pointed to anti-stockpiling provisions that need clarity.

"There's not much of a guidance beyond cost percentages and how you need to comply with a certain level of cost that is FEOC-free. That implies that your suppliers and their suppliers are going to make this information available," Martin Pochtaruk, president and CEO of Heliene Inc., a solar module manufacturer with two factories in Minnesota, told Platts.

While the executive order does not mention 45X, it will impact tax credits that help create demand for domestic manufactured products, which could be difficult to gauge when other tax credits, including the domestic content bonus, go away.

"Solar will be deployed sort of no matter what," Gardner said. "For us, it's a matter of the time that the credit is around and accessible to people, because after project developers can't access that credit, they will simply choose the lowest-cost good, which is the artificially cheap Chinese product."

"We're hoping the Treasury guidance doesn't limit the amount of projects that can start construction that will then demand more US product to reach the domestic content bonus," Gardner added.

Pochtaruk said the bill is "workable" for manufacturers, but the potential changes to demand remain to be seen.

"The drivers are changing, rapidly changing," Pochtaruk said. "We were on a market with carrots as drivers, 45X, the domestic content and others, and now we're going to sticks where FEOC is the new boogeyman."

Executive order questions

Potential changes to the definition of commencing construction are among the questions stemming from the July 7 executive order.

"With this new executive order, we don't know if that's going to be the same definition of commencing construction or not," Rachel Burkhart, partner at Dorsey & Whitney LLP, told Platts. "So, it could become more difficult for companies to take the steps necessary to meet that grace period deadline."

"The definition of beginning of construction is something we've always relied on," Laura Stern, head of US tax credits at Marex Group PLC, told Platts. "To change it now, [it] just creates a whole lot of uncertainty when there is time pressure to start construction."

Treasury Department guidelines should clarify what qualifies, but until then, investors may wait on the sidelines.

"It will be very hard to continue to make investments in safe harbor equipment until we know what the rules of the game are," Stern said.

Other uncertainties persist.

"The big question the industry has had ... is about the executive order and whether the financiers will press 'pause' on further financings of projects until there's greater clarity on what the Treasury will do about the construction start tests," Keith Martin, co-head of projects in the US at Norton Rose Fulbright, told Platts. "The answer to that so far is, nobody has pressed pause."

In the meantime, developers are trying to push projects forward as best they can while figuring out a longer-term strategy. Hunt and Cramer said that in the near term, Pivot Energy and Coalition for Community Solar Access members are working fast to meet the bill's deadlines.

"In the long term, we can model and strategize around what markets look like with no [investment tax credit]," Hunt said.

"It's really just a question of how big is the category in the middle when it's unclear whether projects will get the [investment tax credit] or not because of the uncertainty around the rules. And right now, that bucket is really big, and that's a problem."