Treasury Adjusts Wind and Solar Tax Credit Rules, Provides Flexibility

Changes in Federal Tax Credits for Solar and Wind Projects Announced by US Treasury Department

The Trump administration, on Friday, introduced new guidance for solar and wind projects to meet heightened work requirements for achieving federal tax credits over the next four years. Despite the concerns of renewable energy advocates that the measures were a step towards phasing out federal support for wind and solar, the industry was largely relieved that the crackdown was not more severe.

Wall Street saw three of its four largest gains for the day being marked by solar companies. Sunrun, the nation’s largest rooftop solar installer, led the surge with a 33% increase in its stock price.

The new guidelines from the Treasury Department were issued in response to an executive order by President Trump, following the One Big Beautiful Bill Act passed by Congress six weeks ago. The wind and solar tax credits had sparked a debate among Republicans that almost jeopardized the important legislation. The crisis was averted when a compromise was agreed upon, ensuring protection for wind and solar projects from the phaseout of their tax credits if construction commences within the next 12 months.

The new guidance changes the traditional interpretation of “start construction”, leading to immediate protests from environmental and industry advocacy groups. They argued that the new changes conflicted with the agreement reached by members of Congress.

CEO of the American Clean Power Association, Jason Grumet, criticized the decision, stating, “The Treasury Department’s decision to accelerate the phase out of clean energy tax credits undermines the integrity of our energy grid and our legislative process.” He added that Congress, in the One Big Beautiful Bill Act, had explicitly decided to provide energy companies with a one-year timeframe to phase out tax credits with the intention of maintaining low energy prices while responding to the rising power demand.

Industry analysts, however, expressed relief at the outcome. Wind and solar developers will still have four years to complete their credit-eligible projects. To remain eligible for tax credits, work will need to be continuous. The Treasury Department has, however, provided a list of permissible interruptions, including work stoppages caused by severe weather, natural disasters, labor shortages, or difficulty in obtaining specialized equipment.

Pavel Molchanov, managing director of renewable energy and clean technology for the investment firm Raymond James, noted that while climate advocates would have preferred the tax credit framework to remain unchanged, given the current political climate, the result was as favorable as it could be.

The Treasury Department has historically regarded the beginning of a project as incurring or paying 5% of the cost of a project. This 5% standard is no longer valid for all projects with a capacity greater than 1.5 megawatts. Instead, these projects will need to meet a more complex “physical work test” to qualify. This test mandates the execution of “work of a significant nature” without interruption.

Since most large projects will not have a strict criterion for what constitutes the commencement of work, such as the dollar amount of work done or the percentage of work completed, the Treasury Department will have more discretion to decide whether the work has begun in adequate time for the project to qualify for tax credits.

Kit Kennedy, managing director for power at the Natural Resources Defense Council, claimed that the result would be uncertainty for projects and challenges for companies in obtaining financing.

She rued the fact that despite Congress providing a clear path for businesses investing in new solar and wind projects around the country, the new guidelines appear to create new obstacles, undermining the legislative intent.

Following the signing of the One Big Beautiful Bill, Trump issued an executive order directing the Treasury Department to promptly “eliminate the market distortions and costs imposed on taxpayers by so-called ‘green’ energy subsidies”. The order was reportedly in response to the concerns of fiscal conservatives in the House who came close to derailing the bill in its final moments.

Senators Chuck Grassley of Iowa and John Curtis of Utah, both Republicans and advocates for wind and solar, reportedly lobbied the Trump administration for leniency. Grassley also announced that he would hold off on Trump’s Treasury nominees over this issue.

In a statement issued on Friday, Grassley seemed hopeful about the impact of the new Treasury guidelines. He said they “seem to offer a viable path forward for the wind and solar industries to continue to meet increased energy demand.”

Senator Curtis expressed his intent to review the new Treasury guidelines thoroughly to understand their full implications.

He thanked Secretary Bessent and his team for managing various perspectives and concerns while implementing the President’s executive order on wind and solar projects. Curtis reiterated his commitment to ensuring that Utah companies and all American innovators have the certainty and opportunity they need to deliver affordable, reliable, clean energy rooted in American ingenuity.

When asked about lifting their hold on Treasury nominees in response to the new guidelines, a spokesperson for Grassley indicated that he is “continuing to review the guidance and speak with the industry,” while Curtis’s spokesperson stated that there was “no change as of now.”