The One Big Beautiful Bill and Its Impact on Solar Energy Credits

The One Big Beautiful Bill (OBBB), signed into law by President Donald Trump on July 4, 2025, represents a transformative shift in U.S. energy policy, significantly impacting solar energy credits and the broader renewable energy sector. Passed through the budget reconciliation process, the OBBB modifies key tax incentives established under the Inflation Reduction Act (IRA) of 2022, with profound implications for homeowners, solar developers, and the renewable energy industry. This article explores the OBBB’s effects on solar energy credits, focusing on the Residential Clean Energy Credit (Section 25D), the Clean Electricity Investment Credit (Section 48E), and other relevant provisions.

Termination of the Residential Solar Tax Credit (Section 25D)

The OBBB accelerates the phaseout of the Residential Clean Energy Credit (Section 25D), which allows homeowners to deduct 30% of the cost of installing solar panels from their federal taxes. Under the IRA, this credit was set to continue until 2034, with a gradual reduction starting in 2032. However, the OBBB terminates this credit for expenses incurred after December 31, 2025. Homeowners must have their solar systems installed and placed in service by this date to claim the 30% credit, creating urgency to act swiftly. Unlike the House’s initial proposal, which included a 180-day phaseout, the final OBBB offers no transition period, exacerbating challenges from potential delays due to weather, supply chain issues, or permitting processes. Industry estimates suggest U.S. homeowners claimed approximately $7 billion in tax credits in 2025, underscoring the credit’s importance. The termination is expected to significantly reduce residential solar demand. The abrupt cutoff could lead to a 20–30% drop in residential solar installations in 2026 alone, as the credit was a primary driver of affordability.

Impact on Business Solar Credits (Section 48E)

The OBBB modifies the Clean Electricity Investment Credit (Section 48E), which supports solar projects, including those involving leases or power purchase agreements (PPAs). The House’s initial proposal excluded leased residential solar from this credit, but the final OBBB restores eligibility, enabling installation companies to claim a 30% credit for qualified projects, which can lower costs for homeowners through reduced lease payments. However, the credit for solar projects is terminated for facilities placed in service after December 31, 2027, unless construction begins within 12 months of the OBBB’s enactment (by July 4, 2026). Projects starting construction by this date have until 2029 or 2030 to be placed in service, per IRS “begin construction” rules, such as the 5% Test (incurring 5% of project costs) or Physical Work Test (significant physical work of a continuous nature). Energy storage systems co-located with solar facilities remain eligible for Section 48E credits until 2032, supporting battery-integrated projects. The OBBB retains direct pay provisions under Section 6417, allowing tax-exempt entities (e.g., nonprofits, municipalities) to receive refundable credits for solar projects, enhancing their viability despite tight timelines. The shortened timeline for Section 48E credits could reduce utility-scale solar deployment by 15–20% by 2030, as developers face financing and construction hurdles.

Foreign Entity of Concern (FEOC) Restrictions

The OBBB expands Foreign Entity of Concern (FEOC) rules, originally introduced under the IRA for electric vehicles and advanced manufacturing, to all clean energy credits, including solar. Projects beginning construction after December 31, 2025, must certify that no components are sourced from or influenced by entities from countries like China, Russia, Iran, or North Korea. This requirement introduces significant compliance challenges, as many American-made solar panels rely on Chinese components. The OBBB imposes penalties for inaccurate certifications and requires the Treasury to issue safe harbor tables by December 31, 2026, to clarify compliance. The bill also modifies the advanced manufacturing production credit (Section 45X) to exclude facilities owned by FEOCs, impacting U.S.-based factories with Chinese ownership. These restrictions could increase solar module costs by 10–15%, as manufacturers shift to costlier domestic or allied supply chains, potentially delaying projects and reducing competitiveness.

Additional Provisions Affecting Solar Projects

The OBBB includes provisions that both support and challenge the solar industry. The bill preserves the transferability of clean energy credits under Section 6418, allowing developers to sell credits to finance projects, which is critical for solar projects facing tight deadlines. It also reinstates 100% bonus depreciation for qualified property, including certain solar projects, placed in service before January 1, 2028, with a phase-down to 80% in 2028, 60% in 2029, and 40% in 2030. This provision provides a financial buffer. Domestic content bonus credits, offering an additional 10% credit for projects using U.S.-made components, are retained but subject to FEOC restrictions, complicating eligibility. Unlike solar and wind, credits for technologies like battery storage, geothermal, nuclear, and carbon capture are extended until 2033, creating a policy disparity. The favoritism toward fossil fuel-linked technologies, coupled with new tax credits for oil and gas production, could divert investment from renewables, with solar and wind projects losing an estimated $150 billion in funding by 2030.

Implications for the Solar Industry

The OBBB’s accelerated phaseout of solar credits is projected to significantly curtail installations. Forecasts indicate a 17% drop in solar installations over the next decade compared to IRA-supported projections, with a surge in 2025–2026 as developers rush to meet deadlines. The Solar Energy Industries Association warns that the bill threatens up to 330,000 jobs and $220 billion in investments by 2030. The combined impact of the OBBB and related policies, such as the reinstatement of tariffs on solar panel imports, could lead to a 25% reduction in solar capacity additions by 2028. The residential solar market, heavily reliant on the 30% Section 25D credit, faces destabilization, while utility-scale projects are constrained by FEOC rules and shortened timelines. Although direct pay and transferability provisions offer some flexibility, the overall policy shift undermines investor confidence and long-term planning.

Broader Energy Policy Context

The OBBB’s emphasis on fossil fuel incentives, including metallurgical coal subsidies and carbon capture for oil and gas extraction, has drawn criticism for prioritizing these over renewables. Princeton’s Jesse Jenkins estimates that the OBBB will increase household energy costs by $280 annually by 2035 and negate 470 million tons of emissions reductions, raising greenhouse gas emissions by 7%. The bill’s passage, supported by $450 million in oil and gas industry contributions to Trump’s 2024 campaign, reflects a broader pivot toward fossil fuels, with new tax credits for oil and gas production expected to boost domestic drilling by 10–15%. This shift threatens the U.S.’s Paris Agreement commitments, as the OBBB’s repeal of IRA methane emissions fees and clean energy funding further tilts the energy landscape away from renewables.

Opportunities and Challenges for Homeowners and Developers

Homeowners face a pressing deadline to install solar systems before December 31, 2025, to secure the 30% Section 25D credit. Solar.com’s OBBB Resource Center recommends consulting energy advisors to navigate competitive pricing and local contractor options. Developers must prioritize projects starting construction by July 4, 2026, to qualify for Section 48E credits, adhering to IRS safe harbors. The reinstatement of bonus depreciation and direct pay provisions provides financial tools, but FEOC restrictions and compressed timelines pose significant hurdles. Developers may need to stockpile U.S.-made components in 2025 to meet FEOC requirements, increasing upfront costs. Tax-exempt entities can leverage direct pay to fund solar projects, but compliance with FEOC rules remains critical.

The One Big Beautiful Bill fundamentally reshapes U.S. solar energy policy by accelerating the phaseout of key tax credits, imposing stringent FEOC restrictions, and prioritizing fossil fuel incentives. While provisions like direct pay, transferability, and bonus depreciation offer some support, the bill’s overall impact on solar is negative, threatening jobs, investments, and emissions reduction goals. Homeowners and developers must act swiftly to capitalize on remaining credits, while the industry navigates a challenging policy landscape.