WASHINGTON 鈥� The Internal Revenue Service on Friday issued new rules that would restrict the ability of wind and solar companies to claim federal tax breaks, a move that analysts said could threaten the viability of many renewable energy projects under development.
President Donald Trump鈥檚 giant domestic policy bill, which was signed into law on July 4, was already set to rapidly phase out lucrative tax credits for new wind and solar farms unless they began construction in the next 12 months. The new IRS guidance would add further restrictions by tightening long-standing rules for what counts as the 鈥渂eginning of construction,鈥� which will make it harder for many projects to qualify.
Previously, a wind or solar farm was said to have begun construction if the developer spent at least 5% project cost, which many companies did by purchasing electrical transformers or other large equipment ahead of time. The developer could then claim any tax breaks that were in effect that year, as long as they finished construction within the next four years.
The new IRS guidance eliminates this so-called 鈥�5% safe harbor鈥� rule for large wind and solar farms, although it keeps it in place for rooftop solar projects and other smaller solar installations.
Renewable energy industry groups criticized the move, which comes as the Trump administration has unleashed a barrage of new restrictions on federal permitting for wind and solar projects across the country.
鈥淭his is yet another act of energy subtraction from the Trump administration that will further delay the build-out of affordable, reliable power,鈥� said Abigail Ross Hopper, CEO of the Solar Energy Industries Association. 鈥淎merican families and businesses will pay more for electricity as a result of this action, and China will continue to outpace us in the race for electricity to power AI.鈥�
The new tax guidance has its origins in the debate earlier this year over Trump鈥檚 domestic policy bill.
While nearly all Republicans voted to end Biden-era tax credits for wind and solar power as part of that bill, some senators successfully pushed for a slightly slower phaseout of the credits in order to limit industry disruption. That angered many House conservatives, who had wanted an immediate termination of the subsidies.
To assuage those concerns, Trump issued an executive order shortly after the bill passed, directing the Treasury Department to limit the ability of wind and solar projects to qualify for the fast-disappearing tax credits.
That move faced pushback from some in Trump鈥檚 own party. This month, Sen. Chuck Grassley, R-Iowa, placed holds on three of Trump鈥檚 nominees for the Treasury Department, saying he was concerned that the agency would flout the intent of Congress.
The removal of federal subsidies means that the amounts of new wind energy and solar energy added in the United States over the next five years are expected to be 50% lower and 23% lower than previously projected, according to BloombergNEF. While many renewable energy projects will remain competitive without subsidies, the group found, some will no longer be economically viable.
Those projections do not account for the Trump administration鈥檚 most recent restrictions, which experts say could cause turmoil for hundreds of wind and solar projects that were expected to start construction over the next year in order to claim the credits.
Under the new IRS guidance, wind and solar companies can still qualify for the credit if they begin certain physical construction activities over the next year, such as digging the foundations for a wind farm or installing the racks that hold solar panels, and then work continuously to complete the project. While many of the biggest and most sophisticated developers may be able to meet this 鈥減hysical work test,鈥� many smaller and medium-size developers might struggle to qualify, experts said.
The stock prices for some of the nation鈥檚 largest renewable energy developers, including NextEra Energy and Clearway Energy, rose more than 2% Friday shortly after the release of the guidance, an indication that those companies may fare better than many of their smaller competitors who are not listed on stock exchanges.
The carve-out for rooftop solar installations appeared to come as a surprise to many investors, as stock prices soared more than 15% Friday for several companies involved in the rooftop solar business, including Sunrun and SolarEdge Technologies.
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