On 4 July US President Donald Trump signed into law a domestic policy bill known as HR1: the One Big Beautiful Bill Act (OBBBA). As well as extending tax cuts and slashing social safety net programmes such as Medicaid and food assistance, while increasing defence and border security spending, the OBBBA generally accelerates phase-outs to the Inflation Reduction Act of 2022 energy tax credits, dictates shortened deadlines for project credit qualification (particularly targeting solar and wind facilities), broadens domestic content restrictions, and restricts credit availability to “prohibited foreign entities of concern” (FEOCs) – all of which raises important project planning considerations for developers, energy producers, and investors in US renewable energy.

Legislation restricting FEOCs is not new. Its roots go back to the Embargo Act of 1807, and it reappeared in tax legislation in 2022. The OBBBA continues this approach by implementing a regime that restricts interactions with FEOCs in the US renewables energy space by curbing availability to IRA energy tax credits.

On a slightly more positive note, it retains transferability of credits, provides a new location-based bonus credit for certain nuclear facilities, offers new life to fuel cell credit eligibility, and extends the Section 45Z clean fuel production credit’s availability, among other potential islands of positivity.

All in all the Bill contains new provisions and far-reaching amendments, with significant ramifications for developers, energy producers, and investors in US renewable energy. It reflects the depriorisation of renewable energy by hampering the ability of RE projects to qualify for tax incentives under the Inflation Reduction Act

FEOC rules

In terms of their effect on outside influences, the FEOC rules operate under three categories:

  • the specified foreign entity (SFE)/foreign influenced entity (FIE) prohibition, which bars tax credit eligibility where the project is owned by an SFE or FIE;
  • the effective control rule, which prevents the SFE from exercising “effective control” over the project;
  • the material assistance rule, which prevents material reliance on products/materials sourced by an SFE or FIE.

Although the definitions are complicated in scope, for practical purposes, ‘SFE’  generally means parties specifically identified on a list of parties, companies and persons (including their subsidiaries) from China, North Korea, Iran, and Russia. An ‘FIE’ generally means parties with material legal and/or financial relationships with such SFEs. The FEOC rules apply broadly to almost all energy tax credits.

Commentary

Some organisations have already broadcast their analyses. If it was possible to assess a general view it would be that the bill’s aims prioritise domestic Republican views about ensuring reliable, affordable power in an era of AI–driven high power demand and geopolitical competition that anchors national energy strategy in long-term physical and industrial resilience, and deprioritises the claims of longer term and wider issues such as climate change and global trade.

Republican party priorities

Landon Derentz, a vp at Atlantic Council Global Energy Center, emphasises that in accordance with Republican party views the bill gives the highest priority to maintaining an affordable electricity supply in the face of accelerating electricity demand capable of withstanding shocks and with a domestic industrial base strong enough to supply the technologies needed to sustain it. To that end, the legislation includes provisions aimed at limiting the use of Chinese-manufactured components in the US grid.

In a decade likely to be defined by soaring digital power demand and strategic competition with China, the real test, he says, is not whether the USA has selected the right tools, but whether it can deploy them at the speed and scale required. And for those left outside the immediate strategy – particularly solar and wind proponents – new opportunities to shape the country’s energy future are all but assured. 

A recipe for energy submission

David Goldwyn, president of Goldwyn Global Strategies, and chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group, says the bill ‘is not the way to [Trump’s aim of] US energy dominance. It cuts short tax preferences enshrined in the Inflaton Reduction Act, creating uncertainty about the reliability of tax incentives, that it egregiously wastes the billions in commitments made for hydrogen, carbon capture, battery, wind, and solar investments, that it is essentially ceding the future of wind, solar, hydrogen, and battery investment to China, and that it will undermine the speed and cost of providing new power generation for artificial intelligence and data-centre hyperscalers. Especially where power generators, such as NextEra, have made clear that renewables with grid-scale battery storage make up the cheapest and fastest power they can access right away. In short, he says, the bill is a recipe for energy submission rather than energy dominance. 

Happy customers

Roeslein Renewables welcomed the signing of the bill which includes a two-year extension of the Clean Fuel Production Tax Credit (Section 45Z), moving the sunset date from 31 December 2027, to 31 December 2029. This extension, it says, is a major victory for US-produced renewable energy sourced from anaerobically digested livestock manure and biomass.