Keeping momentum amid energy tax credit repeals: Key takeaways from CEEM’s webinar with Jeremy Kalin

In the aftermath of the federal budget reconciliation bill’s passage, the clean energy industry is facing an onset of policy hurdles. On navigating these new complexities, CEEM hosted a webinar featuring Jeremy Kalin, who covered the extensive changes to federal energy tax credits in the latest budget bill. Jeremy currently leads Avisen Legal’s Impact Council and has formerly served in the Minnesota House of Representatives, with professional experience in clean energy and climate policy. In the webinar, he breaks down the repeals and reshaping of multiple clean energy tax credits. Below is a walk-through of the major topics discussed throughout the webinar.

Sweeping repeals to consumer and EV credits

One of the most imminent shifts under the federal budget bill is the loss of consumer and electric vehicle (EV) energy credits. This includes both new and used electric vehicle credits, in addition to incentives for energy-efficient home improvements and residential solar installations.

The Used EV Credit (Section 25E) and the New EV Credit (Section 30D) are set to be repealed as of September 30, 2025. Similarly, the Energy Efficient Home Improvement Credit (Section 25C) will also end on that date. The New Energy Efficient Home Credit (Section 45L) will phase out for homes sold after June 30, 2026. The Residential Clean Energy Credit (Section 25D), which includes solar installations, will no longer apply to expenditures made after December 31, 2025. Note that for existing structures, an expenditure is defined as “made when the installation is completed,” not just purchased or contracted.

These repeals are on track to have major impacts. Eliminating incentives that have historically reduced upfront costs and driven consumer demand may not only lead to a downturn in residential solar and EV adoption, but also a potential ripple into manufacturing, installation, and service sectors. Jeremy noted that projections estimate the possibility of tens of thousands of jobs lost as a result of these repeals.

FEOC restrictions and compliance

One of the most disruptive aspects of the new budget bill is the Foreign Entity of Concern (FEOC) restrictions. Under these rules, clean energy projects beginning construction in 2026 and beyond will be subject to material assistance thresholds. For 2026 projects, no more than 60% of solar project components and 45% of energy storage components may be sourced from Prohibited Foreign Entities. For 2027, thresholds drop further; 55% for solar and 40% for storage. Exceeding these limits will make a project ineligible for the tax credits.

Prohibited Foreign Entities (PFEs) are categorized by both Specified Foreign Entities (SFEs) and Foreign Influence Entities. These include entities controlled by foreign governments considered a threat to U.S. national security, businesses or individuals from an SFE with significant ownership stakes or debt held, or any organization whose board members are appointed by SFEs. Restrictions also prohibit direct payments to PFEs for any credit-eligible project. No circumvention is allowed within these restrictions.

With the current lack of domestic supply chain options, these restrictions ultimately limit the growth and feasibility of clean energy projects.

Construction and project timelines

When considering maintaining eligibility for tax credits, understanding the updated timeline is crucial, especially for wind and solar projects.

For the 48E Clean Electricity Investment Tax Credit, projects must have begun construction by the end of 2024 to utilize the five-year depreciation treatment. However, projects placed in service on or after January 1, 2025, are no longer eligible for the 5-year benefit, but can still apply for the 100% bonus depreciation for most projects.

Any wind or solar project that begins construction before the end of 2025 will not be required to meet Foreign Entity of Concern (FEOC) material assistance requirements. Projects starting in 2026, however, will be subject to FEOC restrictions. Those that begin after July 4, 2026 (one year after the bill’s enactment date), must also be placed in service by the end of 2027 to access the statutory safe harbor under Section 48E.

To qualify as “beginning construction,” projects must meet either the physical work test or incur at least 5% of total project expenditures. Ideally, developers could aim to target 7 to 10% on the safer side, keeping in mind the ambiguity of what will qualify under Treasury’s revised construction guidance expected by August 17, 2025. This updated guidance may potentially affect areas such as safe harbor, expenditure test increases, and physical work test threshold.

Upheld credits and provisions

Some notable commercial credits remain relatively untouched by the new bill. On these credits, Jeremy highlighted the efforts of CEEM members and Minnesota’s U.S. Senators in preserving key provisions within the bill.

Bonus Credits remain available, including the Domestic Content Bonus, the Energy Communities Bonus, and the Low-Income Communities Bonus. Both Transferability and Direct Pay options are also preserved, although they are now subject to FEOC restrictions. All of these continue to apply as long as the underlying credit remains intact.

Projects under Section 48, Ground Source Heating and Cooling, remain untouched and are eligible through 2034 without any FEOC restrictions. Energy Storage and other Zero-Greenhouse-Gas Emission projects are also preserved through 2034, but are subject to FEOC rules.

Moving forward

Although predominant consumer-side incentives have been stripped away, notable areas of the commercial market remain intact. Areas like ground-source heating, utility-scale energy storage, and clean fuels (covered under Section 45Z) remain eligible for long-term credits. The 45Z Credit, in particular, was extended through 2029, though it includes new sourcing requirements and emissions methodology updates beginning in 2026.

For businesses and organizations in the clean energy industry, the budget bill’s implications require an immediate and strategic response to get projects moving. “This is a workable regime; we’ve just got work to do,” Jeremy remarks in the webinar, and there are still meaningful opportunities to succeed for businesses that can navigate the updated requirements and move quickly.

While the budget bill represents significant challenges to the industry, it is not the end of clean energy support. In a continuously evolving policy environment, it remains important to stay informed, act thoughtfully, and remain agile.