Senate Finance Committee Modifies House IRA Cuts with Limited Impact on Wind and Solar Incentives

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The Senate Finance Committee has unveiled its version of the budget bill passed by the House in May, which proposes more moderate cuts to the Inflation Reduction Act (IRA) but still significantly reduces tax incentives for wind and solar energy. According to the committee’s proposed budget, wind and solar projects must commence construction by the end of 2025 to fully qualify for the 45Y and 48E tax credits.

Harry Godfrey, who heads the federal policy team at Advanced Energy United, stated, “For wind and solar, you have particularly large-scale projects that are very much in development. They are likely not to begin construction until 2027 or 2028, effectively jeopardizing those projects.”

The Senate’s proposal differs from the House’s more stringent requirements, which mandated that projects break ground within 60 days of the bill’s signing and be operational by the end of 2028 to qualify for technology-neutral clean electricity production and investment tax credits. In contrast, the Senate version allows eligible technologies like nuclear, geothermal, and hydropower to claim the 45Y and 48E tax credits if they begin construction by 2033. However, wind and solar projects are subject to different criteria: they can qualify for 60% of these credits if they start construction by 2026, 20% if they begin by 2027, and none if they commence after that.

Godfrey expressed concerns over the impact of these regulations on the residential solar sector, adding that manufacturers are uncertain about their future in the U.S. without a stable demand. He quoted manufacturers as saying, “I don’t know whether I will keep manufacturing in the U.S. if I don’t have a certain degree of certainty about that demand, or at least enough time to transition accordingly.”

Investment bank Jefferies noted that the Senate’s version could negatively affect companies such as Sunrun, SolarEdge Technologies, and Enphase Energy. However, they acknowledged that storage might still be eligible for the 48E tax credit under lease agreements, viewing this as a moderately positive outcome for NextEra Energy.

Godfrey appreciated the Senate’s shift from a “placed in service” requirement to a “commence construction” requirement, though he highlighted that the strict timelines for wind and solar projects remain a concern. He also welcomed the broader transferability of credits across various technologies.

The Senate preserved the original timelines for the 45Q carbon sequestration and 45X advanced manufacturing credits, whereas the House had proposed ending these credits after 2028. Nevertheless, both chambers agreed to eliminate the eligibility of wind components for the 45X credit after 2027.

On the subject of restrictions regarding foreign entities, Crux, a finance technology firm, noted that the Senate bill adopts a fundamentally different approach from the House. It introduces a material assistance cost ratio framework, modeled on the existing domestic content bonus structure, which creates a credit-specific qualification framework based on the level of non-foreign entity of concern input sourcing across technology categories. Crux observed that initial reactions to the Senate’s language are largely positive, considering it clearer and more workable than the House’s provisions. However, it may still impose a significant compliance burden that could limit the number of qualifying projects.

Godfrey remains hopeful, stating, “I don’t think this cake is baked yet,” indicating that there is still potential for adjustments as the bill progresses through the Senate. He encouraged project developers to actively communicate with their representatives about the implications of the proposed regulations on their projects.
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