The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has reshaped the landscape of clean energy tax credits in the United States. While the legislation retains some incentives from the Inflation Reduction Act (IRA) of 2022, it introduces significant changes, including accelerated phase-outs, tightened eligibility criteria, and new opportunities for specific technologies. At [Your Company Name], we are committed to helping our clients navigate these changes to maximize the benefits for their clean energy projects. This blog explores the key provisions of OBBBA’s clean energy credits, their tax rates, and what they mean for developers, investors, and businesses in the renewable energy sector.
Key Changes to Clean Energy Tax Credits
1. Clean Electricity Production and Investment Credits (Sections 45Y and 48E)
The OBBBA significantly alters the Clean Electricity Production Tax Credit (PTC) under Section 45Y and the Clean Electricity Investment Tax Credit (ITC) under Section 48E, which replaced the legacy PTC (Section 45) and ITC (Section 48) as of January 1, 2025.
- Wind and Solar Projects:
- Phase-Out Timeline: Wind and solar projects face an accelerated phase-out. To qualify for credits, projects must be placed in service by December 31, 2027, unless construction begins within 12 months of the OBBBA’s enactment (by July 4, 2026).
- Tax Rates: The base PTC rate remains at 0.3 cents per kWh (inflation-adjusted) for projects meeting prevailing wage and apprenticeship requirements, with a 5x multiplier (1.5 cents per kWh) for compliant projects. The ITC offers a base rate of 6%, increasing to 30% if requirements are met.
- Implications: Developers must act swiftly to meet the tight construction deadlines. Our team at [Your Company Name] can assist with project planning to ensure compliance with the “beginning of construction” rules, leveraging IRS Notices 2013-29 and 2018-59, which OBBBA codifies for certain provisions.
- Other Technologies (e.g., Battery Storage, Geothermal, Nuclear):
- Phase-Out Timeline: Non-wind and non-solar technologies benefit from a longer runway, with credits available at full value through 2033, then phasing down to 75% in 2034, 50% in 2035, and 0% in 2036.
- New Nuclear Bonus: A new energy community bonus credit is available for advanced nuclear facilities in areas with significant nuclear-related employment (0.17% or greater since 2009).
- Fuel Cell Projects: Starting January 1, 2026, qualified fuel cell projects (1 MW or larger) are eligible for a flat 30% ITC, exempt from prevailing wage, apprenticeship, and zero-emission requirements, but not eligible for domestic content or energy community bonuses.
2. Clean Fuel Production Credit (Section 45Z)
The OBBBA extends the Clean Fuel Production Credit under Section 45Z, a bright spot for clean fuel producers:
- Extension: The credit is extended through December 31, 2029, two years beyond the original IRA sunset date.
- Tax Rates: The credit amount is based on the fuel’s greenhouse gas emissions rate. For sustainable aviation fuel (SAF), the rate is reduced from $1.75/gallon to $1.00/gallon for fuel produced after 2025.
- New Restrictions: After December 31, 2025, fuel must be derived exclusively from feedstocks grown or produced in the United States, Canada, or Mexico. The emissions rate calculation now excludes indirect land use changes, simplifying compliance for some producers.
- Opportunities: The extension provides a longer window for producers of low-carbon transportation fuels, including hydrogen, to benefit. [Your Company Name] can help optimize your production processes to meet these new feedstock requirements.
3. Clean Hydrogen Production Credit (Section 45V)
The Clean Hydrogen Production Tax Credit faces a stricter timeline:
- Termination: The credit is unavailable for projects beginning construction after December 31, 2027, five years earlier than the IRA’s original sunset.
- Tax Rates: The credit remains a two-tier, inflation-adjusted PTC over 10 years, based on the lifecycle emissions of hydrogen production.
- Implications: Hydrogen project developers must accelerate planning to meet the 2027 deadline. Our experts can guide you through the complexities of emissions calculations using the GREET model to maximize credit eligibility.
4. Advanced Manufacturing Production Credit (Section 45X)
The Advanced Manufacturing Production Credit sees targeted changes:
- Wind Components: The credit for wind energy components ends for components produced and sold after December 31, 2027.
- Metallurgical Coal: A new 2.5% credit is introduced for metallurgical coal used in steel production, even if produced outside the U.S., unlike other critical minerals which carry a 10% credit.
- Integrated Components: Credits can be stacked for components produced in the same facility, provided 65% of direct material costs are from U.S. sources and the end product is sold to an unrelated party.
5. Carbon Oxide Sequestration Credit (Section 45Q)
A notable win in the OBBBA is the enhancement of the Carbon Oxide Sequestration Credit:
- Equalized Rates: Starting July 4, 2025, the credit for carbon oxides used in enhanced oil recovery (EOR) or other permitted uses is increased to $85 per metric ton ($180 for direct air capture), matching the rate for permanent sequestration.
- Implications: This parity boosts the financial viability of carbon capture projects, particularly for EOR applications. [Your Company Name] can assist with project structuring to capitalize on this enhanced credit.
6. Foreign Entities of Concern (FEOC) Restrictions
The OBBBA introduces stringent restrictions on projects involving Foreign Entities of Concern (FEOCs), particularly those tied to China, Russia, North Korea, and Iran:
- Eligibility: Credits are denied for projects owned, controlled, or receiving material assistance from FEOCs. This applies to Sections 45Y, 48E, and 45X, with stricter material assistance rules for energy storage projects.
- Effective Date: These restrictions take effect for taxable years beginning after July 4, 2025, with no grandfathering for existing contracts.
- Compliance: Developers must enhance supply chain diligence to ensure compliance. Our team offers tailored solutions to audit and restructure vendor relationships to meet these requirements.
7. Transferability and Direct Pay
The OBBBA retains the IRA’s transferability (Section 6418) and direct pay (Section 6417) provisions, with some modifications:
- Transferability: Credits can still be sold to unrelated parties, but transfers to FEOCs are prohibited. For Section 45X, transferability ends for components sold after December 31, 2027, and for Section 45Z, for fuel produced after December 31, 2029.
- Direct Pay: The direct pay option, allowing tax-exempt entities to receive credits as cash, remains intact but is subject to the same accelerated phase-outs and FEOC restrictions.
- Strategic Advantage: These mechanisms provide liquidity for clean energy projects. [Your Company Name] can facilitate tax credit transfer agreements with FEOC-specific provisions to mitigate risks.
8. Domestic Content Requirements
The OBBBA tightens domestic content requirements for bonus credits:
- Threshold Increase: For projects beginning construction after June 12, 2025, the domestic content threshold rises from 40% to 45%, increasing annually to 55% by 2027 for PTC projects, aligning with ITC thresholds.
- Implications: Projects must source more components domestically to qualify for bonus credits, requiring robust supply chain management. We can help you navigate these requirements to secure maximum credits.
Strategic Considerations for Clean Energy Projects
The OBBBA’s changes demand immediate action from developers and investors:
- Accelerate Project Timelines: For wind and solar projects, starting construction by July 4, 2026, is critical to secure credits. Our project management services can streamline your timeline to meet these deadlines.
- Leverage Extended Credits: Technologies like geothermal, nuclear, and clean fuels benefit from longer credit availability. We can help you pivot to these opportunities for sustained growth.
- Ensure FEOC Compliance: The new FEOC rules require rigorous supply chain audits. Our compliance experts can assist in restructuring vendor agreements to maintain credit eligibility.
- Maximize Transferability and Direct Pay: With retained transferability and direct pay options, monetizing credits remains viable. We offer financial structuring services to optimize these benefits.
- Capitalize on Carbon Capture: The enhanced Section 45Q credit opens new opportunities for carbon-intensive industries. Our team can guide you through project structuring to leverage this credit.
How Hive Tax AI Can Help
The OBBBA has fundamentally shifted the clean energy tax credit landscape—with accelerated deadlines, stricter sourcing and FEOC restrictions, and tighter guardrails around “beginning construction.” To stay ahead, clean energy stakeholders must act now: accelerate timelines, meticulously document supply chains, and explore new opportunities like fuel cell credits.
Need help navigating these changes? Try our AI tax tool today or book a free demo and see how AI can help you serve senior clients.