Trump administration limits subsidies for solar, wind projects

The Internal Revenue Service on Friday made it harder for wind and solar energy projects to get federal tax credits, issuing new rules saying that significant physical work must have started by next July to qualify.

In a last-minute deal to secure President Donald Trump’s One Big Beautiful Bill last month, the White House promised House Republican deficit hawks that it would seek to clamp down on the remaining avenues for wind and solar to get tax credits. The legislation allows projects that are starting construction by July 2026 or that are placed in service by the end of 2027 to qualify, though conservatives had sought an even quicker end to the subsidies.

Trump issued an executive order the following week directing the Treasury Department, which oversees the IRS, to write new rules to that effect within 45 days.

The IRS, in confirming the changes, did not respond to questions about the policy.

The new rules, outlined in an IRS guidance document, redefine what it means to start construction for the purpose of the subsidies. Previously, projects had to have spent 5% of their investment to qualify. Under the new rules, “physical work of a significant nature” will need to have begun.

While the rules will hit major solar and wind projects, the IRS did not tighten the requirements for lower-output solar, in an apparent win for homeowners looking to install panels on their roof.

Examples in the document include beginning excavation of the foundation for wind turbines, pouring concrete pads or the manufacturing of components off-site. For solar, the document says installation of racks to install photovoltaic panels would qualify.

Solar industry representatives fear that the rules could be used to curtail the number of projects that receive tax credits.

“The Treasury Department’s new guidance to further restrict energy tax credits is part of an unprecedented side deal the administration made with anti-clean energy ideologues to undermine Congress and further harm America’s solar industry,” said Abigail Ross Hopper, president and chief executive of the Solar Energy Industries Association.

The guidance provides a loophole for low-output solar facilities to qualify under the previous 5% threshold, which could benefit rooftop solar for residences and smaller businesses.

“It’s slightly better than expected, and it looks workable for our part of the industry,” said Chris Hopper, co-founder and CEO of Aurora Solar, which supplies companies mostly working in rooftop solar.

“Certainly for residential and small-to-medium commercial solar, for distributed solar, this is certainly not as bad as it could have been,” Hopper added.

The share price for solar companies rose Friday, with First Solar up 11% and Sunrun increasing 33%.

The guidance will probably be challenged in court, as is common for new tax rules. Legal challenges are likely to focus on whether the rules go beyond the letter of the law.

“The administration must follow the law as it is written, not as a few stray lawmakers wish it had been written,” said Kit Kennedy, managing director for power at the Natural Resources Defense Council, an environmental advocacy group.

The new rules accelerate the phaseout of the tax credits, while Congress explicitly gave energy companies one year before eliminating them, said Jason Grumet, CEO of American Clean Power Association, which represents the largest U.S. electricity producers.

More than a dozen conservative groups had called this month for the 5% rule to be thrown out and replaced by the physical work standard in a letter to the treasury secretary reviewed by the Washington Post.

The IRS rules appear to be in line with the request from conservative groups, apart from the exception for smaller projects.

“It’s still significantly better for folks who don’t think that the government should be in the business of spending taxpayer money on renewables,” said Tom Pyle, president of American Energy Alliance, a conservative advocacy group, after the rules were released.

“It will mean in the very near future wind and solar projects will have to compete in the market more fairly.”

Even if the rules are eventually thrown out, they add an layer of short-term uncertainty for a renewables industry already facing major disruption from the Trump administration.

Solar and wind companies that rely on imported components have struggled with Trump’s tariffs, with the congressional debate on the One Big Beautiful Bill and its subsequent rollout amping up uncertainty for the sector.

“We’re seeing some paralysis in decision-making in the developer world right now,” said James Holmes, CEO of Solx, a solar module manufacturer.

Holmes said he expects that developers will begin making decisions about whether to move ahead with projects now that the bill’s provisions are set and being implemented.

“There’s been a pretty significant hit to our industry, but we’ll get through it,” he said.