The United States Senate Committee on Finance 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.

These credits currently support zero-emission electricity generation by rewarding either the facility’s output or the capital invested in its construction. Under existing law, both were set 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.

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.

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.

In addition, wind and solar installations leased to residential customers will no longer be eligible for production-related incentives.

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.

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.

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.

Standalone Energy Storage Investment Credit

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.

Curbs on Critical Mineral Production Credit

The updated provision phases out the manufacturing production credit for critical minerals as well.

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.

The credit for wind components would phase out earlier, ending for items produced and sold after December 31, 2027.

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.

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.

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.

Energy-efficient Home Improvement

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.

Clean Hydrogen Production Credit

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.

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.

The bill had passed the U.S. House of Representatives narrowly, 215-214, with all Democrats voting against it.