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					</table><p>The <a href="https://www.finance.senate.gov/" target="_blank" rel="noopener">United States Senate Committee on Finance</a> has released a draft legislative text for its version of the budget reconciliation bill, which includes a provision to phase out the clean electricity production tax credit (PTC) and the investment tax credit (ITC) starting in 2026.</p>
<p>These credits currently support zero-emission electricity generation by rewarding either the facility&#8217;s output or the capital invested in its construction. Under existing law, both were <a href="https://www.mercomindia.com/us-draft-budget-proposes-sweeping-changes-to-clean-energy-incentives" target="_blank" rel="noopener">set</a> to phase out starting in 2032 or once electricity-related emissions fell to 25% of 2022 levels, whichever came later. The new provisions advance this timeline, particularly for wind and solar projects.</p>
<p>For wind and solar technologies, both credits begin phasing down in 2026, with projects starting that year receiving only 60% of the full value. This drops to 20% in 2027 and is eliminated by 2028.</p>
<p>For other electricity-generating technologies, such as hydropower, nuclear, and geothermal, the credit is phased out on a different timeline. These projects receive the full credit if construction begins in 2033. In 2034, they receive 75% of the credit. The value decreases to 50% in 2035, and by 2036, no credit is available.</p>
<p>In addition, wind and solar installations leased to residential customers will no longer be eligible for production-related incentives.</p>
<p>Both credits are further restricted by new rules, excluding participation by entities with links to foreign adversaries. Facilities receiving material support from such entities will not qualify if construction begins after 2025. Companies that are themselves considered prohibited foreign entities also lose access to the credits starting with the next tax year following enactment.</p>
<p>Wind projects were eligible for the Clean Electricity Production Credit under Section 45Y of the Inflation Reduction Act. It has no set expiration under current law and allows wind developers to claim credit based on output. The Senate proposal now repeals this credit for wind projects that begin construction after December 31, 2024. For projects that begin before the end of 2024 but are placed in service later, the step-down applies. Only wind projects commencing in 2024 will qualify for the full credit.</p>
<p>Similar changes apply to solar energy. Under current law, developers of solar projects can choose between the ITC under Section 48E or the PTC under Section 45Y. Both options, introduced through the Inflation Reduction Act, had no predetermined expiration. The proposed changes repeal both credits for solar projects that begin construction after December 31, 2024. For those that begin before the deadline but are delayed in completion, the value of the credit declines. To qualify for the full benefit, construction must begin in 2024 and proceed swiftly to commissioning.</p>
<p><a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025.png"><img loading="lazy" decoding="async" class="aligncenter wp-image-81035 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025.png" alt="Changes to Specific Energy and Manufacturing Credits as of June 16, 2025" width="1228" height="1629" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025.png 1228w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025-226x300.png 226w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025-768x1019.png 768w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025-1158x1536.png 1158w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025-650x862.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025-624x828.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/06/Changes-to-Specific-Energy-and-Manufacturing-Credits-as-of-June-16-2025-600x796.png 600w" sizes="(max-width: 1228px) 100vw, 1228px" /></a></p>
<p><strong>Standalone Energy Storage Investment Credit</strong></p>
<p>The draft bill also revokes the investment tax credit for standalone energy storage systems, which was made available under Section 48 following the Inflation Reduction Act. The repeal applies to all projects that begin construction after December 31, 2024. This means only storage systems that start before the end of 2024 remain eligible. Starting in 2025, no new standalone energy storage projects will qualify for the ITC.</p>
<p><strong>Curbs on Critical Mineral Production Credit</strong></p>
<p>The updated provision phases out the manufacturing production credit for critical minerals as well.</p>
<p>In 2031, the credit for critical minerals would be limited to 75%. It would drop to 50% in 2032, 25% in 2033, and end entirely in 2034.</p>
<p>The credit for wind components would phase out earlier, ending for items produced and sold after December 31, 2027.</p>
<p>Another change removes a rule that previously treated eligible components as sold to an unrelated party if they were integrated into another eligible component. This change will take effect for taxable years beginning after December 31, 2026.</p>
<p>The provision also limits credit eligibility for taxpayers with ties to certain foreign entities. Starting in 2026, no credit is available for components manufactured with material assistance from a prohibited foreign entity, as defined under section 7701, with modifications introduced in this bill.</p>
<p>Additionally, beginning in the first tax year after enactment, the credit is not available to taxpayers classified as specified foreign entities or foreign-influenced entities.</p>
<p><strong>Energy-efficient Home Improvement </strong></p>
<p>Taxpayers can claim a credit for residential spending on solar electric systems, solar water heating, fuel cells, small wind energy systems, geothermal heat pumps, and battery storage if the property is placed in service within 180 days after the bill is enacted.</p>
<p><strong>Clean Hydrogen Production Credit</strong></p>
<p>The bill also repeals the clean hydrogen production credit provided under Section 45V for facilities that begin construction after December 31, 2024. Unlike the wind and solar credits, there is no phase-down. The repeal is absolute. Under existing law, the credit is available for ten years from the start of production and varies based on the carbon intensity of the hydrogen produced. Its value ranges from 20% to 100% of $0.60 per kilogram.</p>
<p>The credit can be transferred to unrelated parties if the producer does not have sufficient tax liability. With the new proposal, only hydrogen facilities starting construction in or before 2024 will remain eligible.</p>
<p>The bill had <a href="https://www.mercomindia.com/us-clean-energy-tax-credits-at-risk/" target="_blank" rel="noopener">passed</a> the U.S. House of Representatives narrowly, 215-214, with all Democrats voting against it.</p>


US Senate Budget Bill Proposes to Slash Solar, Wind Incentives From 2026


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					</table><p>The U.S. <a href="http://www.house.gov/" target="_blank" rel="noopener">House of Representatives</a> passed the 2025 budget reconciliation bill, advancing it to the Senate. The bill proposes significant changes that could severely undercut the clean energy sector. If passed in its current form, it would undo many of the long term tax credit policies that have driven investment and growth in solar, wind, and storage projects.</p>
<p>The bill passed narrowly, 215-214, with all Democrats voting against it.</p>
<p><a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits.png"><img loading="lazy" decoding="async" class="aligncenter wp-image-79896 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits.png" alt="" width="1164" height="1619" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits.png 1164w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits-216x300.png 216w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits-768x1068.png 768w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits-1104x1536.png 1104w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits-650x904.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits-624x868.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2025/05/US-credits-600x835.png 600w" sizes="(max-width: 1164px) 100vw, 1164px" /></a></p>
<p>The bill eliminates the Investment Tax Credit (Section 48E) and the Production Tax Credit (Section 45Y) for utility scale projects that are not operational by the end of 2028. This is not a phase down, it is a hard stop. Projects must also begin construction within 60 days of the bill’s enactment to remain eligible. The <a href="https://www.mercomindia.com/us-draft-budget-proposes-sweeping-changes-to-clean-energy-incentives/" target="_blank" rel="noopener">initial draft</a> had an extended phaseout schedule. That is an incredibly short runway for planning and financing large scale projects.</p>
<p>The amendment adds a restriction under Sections 48E and 45Y, denying tax credits for residential solar systems leased to third parties if the lessee could have claimed the Section 25D credit by owning the system. This could significantly impact third-party ownership models that have driven residential solar growth.</p>
<p>However, companies building new nuclear reactors can still qualify for tax breaks as long as construction begins before the end of 2028. PTC for existing nuclear projects will phase out at the end of 2031.</p>
<p>The House bill also aims to limit foreign involvement in the clean energy supply chain by introducing strict new foreign entity of concern (FEOC) provisions. Based on the 2021 National Defense Authorization Act, these rules bar tax credit eligibility for projects that use materials, components, or intellectual property linked to nations deemed adversarial to the U.S.</p>
<p>The restrictions apply to the 45X manufacturing credit and the 45Y and 48E credits. The broad definition of “material assistance” includes critical minerals, subcomponents, recycling processes, and design elements. Ownership, board control, and financial influence from FEOCs are also restricted, which could disqualify many Chinese-made solar components, even if final assembly occurs elsewhere.</p>
<p>The bill further specifies that wind products will no longer qualify for the 45X credit starting in 2028. The credit will remain fully in place until 2031 and be eliminated in 2032 without a gradual phase-down.</p>
<p>This bill, if enacted, would reverse much of the progress the clean energy industry has made under the IRA. That said, there is hope that the Senate version will moderate some of the more extreme provisions proposed in the house bill.</p>
<p>Soon after assuming office as U.S. president, Donald Trump <a href="https://www.mercomindia.com/trump-pauses-clean-energy-spending/" target="_blank" rel="noopener">issued</a> a raft of executive orders seeking to reverse his predecessor’s climate and energy agenda. One order directed federal agencies to immediately pause the disbursement of funds through the IRA, which <a href="https://www.mercomindia.com/inflation-reduction-act-faster-transition-clean-energy-u-s" target="_blank" rel="noopener">proposed</a> spending millions of dollars to promote clean energy.</p>


US Clean Energy Tax Credits at Risk as Reconciliation Bill Moves to Senate

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