In a week’s time, mid-sized wind and solar developers — like those behind some community solar projects — will be disproportionately disadvantaged in the industry.
New guidance on tax credits from the Trump administration goes into effect Sept. 2, limiting the conditions under which solar and wind developers can qualify for Biden-era tax credits before they begin phasing out in 2026.
Large wind and solar developers in the United States breathed a sigh of relief after the Treasury Department unveiled the guidance earlier this month, with many expecting much harsher restrictions than what was issued. Small solar projects, like residential installations, were effectively untouched.
“It could have been a lot worse, and this is definitely something that, while it will make it difficult for some, it is a really workable path forward for many,” said Julia Dinkel, the associate director of public policy at the firm Novogradac — a firm whose services include helping clients navigate tax credit guidelines.
But not all developers were so lucky. Dinkel told NOTUS that “in that mid-sized range … it’s probably going to be a bit harder for them.”
Under previous guidance, developers could claim credits if they incurred at least 5% of the total cost of a project before a certain deadline, regardless of how much physical construction for a project was done. Under the new guidance, the bulk of developers must complete “significant” physical work on the project to qualify — a standard that experts are calling more restrictive, but still manageable, for most developers.
Solar facilities with outputs of less than 1.5 megawatts are the only ones that can still claim tax credits by meeting the cost threshold, offering a win to the hundreds of small projects currently under development.
But many mid-sized developers designed their projects specifically to qualify for Biden-era subsidies that have since been undone by the Trump administration. They may not have the resources to suddenly meet the physical-work requirements, said Peter Lawrence, the chief public policy officer at Novogradac.
Lawrence told Notus that “1.5 to 5 [megawatts] is a sweet spot that many solar developers were trying to meet in order to take advantage of the inflation Reduction Act, and that avenue is now clearly cut off.”
Advocates for expanding community solar — an energy model where individuals, businesses and others can all subscribe to solar energy generated offsite — are especially concerned by the new guidance. Those companies are scrambling this week to ensure they can comply with the guidance, said Liz Perera, the senior director of national programs and policy at the Coalition for Community Solar Access.
“Whether it’s a Walmart or a commercial installation or an installation on the side of a highway, those are more like 5 megawatts,” Perera told NOTUS. “Many of the companies that we work with … have been working very hard to make sure that they are able to meet the new test.”
Community solar expansion over the next few years is projected to face some roadblocks because of grid connection challenges, but the report said it was still expected to continue expanding overall.
Now, the pace of expansion could be on even shakier ground because of the new guidance.
The Treasury guidance “threatens thousands of small businesses across the country that are the backbone of our clean energy economy,” Solar Energy Industries Association President and CEO Abigail Ross Hopper said in a statement.
“China will continue to outpace us in the race for electricity to power AI,” Hopper’s statement said. Clean energy advocates have pointed to mid-sized and community solar projects as a feasible way to meet growing energy demand in the country, which recently has seen a surge because of artificial intelligence development.
Elsewhere in the industry, the guidance was received with some optimism — much of which was driven by relief that the guidelines were less stringent than expected.
Analysts told reporters the changes are concerning but “manageable,” and shares of solar and wind companies with projects in the U.S. saw an uptick.
Some of the moderate Republican lawmakers who supported maintaining some level of tax credit eligibility during negotiations on the budget reconciliation bill also applauded the guidance.
Utah Sen. John Curtis — who advocated to strip out some of the strictest anti-wind and anti-solar provisions initially in the Senate’s reconciliation bill text — suggested in a statement that the Treasury guidance is in line with his goal of “providing a soft landing” for clean energy developers while phasing out credits.
Iowa Sen. Chuck Grassley, who’s long been a wind supporter and emerged as a moderate Republican voice in favor of preserving some clean energy credits during budget reconciliation negotiations, said in a statement that the guidance offers a “viable path forward.”
A spokesperson for one leading U.S. energy company whose portfolio includes wind and solar projects told NOTUS that their company wants to get as many clean energy projects online as possible and is forging ahead regardless of the Treasury guidance.
“The subsidies just aren’t even a factor for us right now,” said the source, who requested anonymity because they were not authorized to discuss the developer’s response to the Treasury guidance publicly. “We know there’s going to be demand.”
But for smaller companies that once relied on credits, it may be more difficult to move forward, clean energy advocates said.
For the companies that Perera and the Coalition for Community Solar Access work with, the new guidance is “causing a lot of investors and developers to reevaluate the way that they are developing solar and distributing energy solutions in general,” Perera said.
“It is important to see this as what it is, which is additional — really anti-free-market — rules that are coming down and are rather arbitrarily being placed on our industry,” Perera added. “It’s causing a lot of upheaval.”
Developers are also steeling themselves for even more Treasury Department guidance on how they must navigate restrictions on sourcing materials from certain foreign countries. Tax experts have suggested that forthcoming guidance could massively hinder developers — including those who were relatively unaffected by the beginning-of-construction guidance — and stunt investment in American clean energy manufacturing.
The department is past the deadline detailed in Trump’s executive order to release those foreign entity of concern, or FEOC, guidelines. A spokesperson for the department declined to comment on the record when NOTUS reached out with questions about when those guidelines will be released and what they will include.
But the Trump administration has cited national security concerns as part of its broader crackdown on wind and solar power, offering a clue into the potential severity of the forthcoming guidelines.
“What we’ve heard from a variety of clients is that some elements of FEOC could be adhered to, but some others are just extremely difficult, because China corners the market, for instance, in certain aspects,” Lawrence told NOTUS.