Finance & Investment

A Business Guide for Navigating IRA Clean-Energy Tax Credits

While headwinds of change are creating uncertainty around a clean-energy transition in the US, a careful analysis of tax-policy history, political realities and energy demands suggests a more nuanced outlook than headlines might indicate.

Brand Provided | By Ian Boccaccio and Ryan Tax Capital | Published 1 month ago | About a 6 minute read

Image: Freepik

As the US clean-energy sector adjusts to a new political landscape, industry stakeholders are understandably concerned about the future of the transformative tax incentives established under the Inflation Reduction Act (IRA). While uncertainty exists, a careful analysis of tax-policy history, political realities and energy demands suggests a more nuanced outlook than headlines might indicate.

Existing projects have strong protections

For developers and investors with projects already underway before January 1, 2025, there's significant protection built into the structure of energy-tax incentives. The Section 48 “renewable energy” credits are locked in by "beginning of construction" dates, rather than completion dates; but the Section 48E “clean energy” investment tax credit took effect on January 1, 2025, and returns to the placed-in-service standard of applicable energy standard. This means that projects that have broken ground before January 1st and met safe harbors through either the physical work test or continuous efforts test — where the taxpayer incurs at least 5 percent of total project costs and continued their work without undue delay — should maintain their eligibility for credits, even if future policy changes occur.

As for the future, the energy-credit regime has never experienced a retroactive rollback throughout its history. Typically, tax extenders with a built-in sunset date (currently beginning phase-out in 2032) do not have the expiration date cut short but instead are allowed to sunset without further extensions.

The political economy of clean energy

The clean-energy transition has created an unexpected political dynamic: Republican-represented districts have become the primary beneficiaries of IRA-driven investments. Data show that 19 of the top 20 congressional districts receiving job creation and private investment from IRA provisions are Republican held. Overall, approximately 72 percent of all jobs and 86 percent of investments announced to date are in Republican districts. With such a slim majority in the House, it is unlikely that a major repeal of the energy-credit regime will be able to get the requisite votes.

House Speaker Mike Johnson recently stated that the approach toward repeal of IRA provisions will be somewhere “between a scalpel and a sledgehammer.” Further, most of the new administration’s energy-policy changes are more likely to relate to fossil fuels. This was demonstrated with the executive order entitled “Unleashing American Energy,” which cut grants for electronic vehicles (EVs) (e.g. the scalpel) but also included major policy changes around fossil fuels (e.g. the sledgehammer) that pave the way for private investment.

Credit transferability: Simplifying the capital stack

The renewable-energy industry's growth under the IRA is supported from Section 6418's transferability provision. This mechanism has transformed project financing by enabling developers to sell tax credits directly to entities with appetite, dramatically simplifying tax credit monetization.

If this provision were eliminated, the industry would face a substantial setback — extracting many corporate taxpayers from the capital stack of clean-energy project finance. Developers would again need to rely on relationships with traditional tax-equity investors and restructure portions of their project financing approaches. The growing interest in hybrid, transfer flip tax-equity partnerships has expanded the industry’s comfort and familiarity with complex partnership structures, however; and the audience for traditional tax equity has grown since before Section 6418’s enactment.

Similarly, Section 6417's direct-pay provision has opened clean-energy development to previously excluded entities including government entities, nonprofits, municipalities and educational institutions. Its elimination would close an important avenue for community-based renewable-energy development.

Technology-specific outlook

The administration's approach is likely to vary significantly by technology:

Electric vehicles: EV credits face the highest risk of modification or elimination, with the administration already pulling back Department of Energy (DOE) grants for charging infrastructure through the "Unleashing American Energy" order.
Traditional renewables: ITCs and PTCs for solar and wind may face less opposition than EV incentives, particularly given their economic impact in Republican districts.
Carbon capture and storage: This technology aligns with the administration's "all of the above" energy approach and has previously received its support. CCS incentives could potentially see enhancement, rather than reduction.
Combustion & gasification: New technologies such as CoGen relying upon combustion or gasification through alternative fuel sources such as RNG will require a new provisional emissions rating (or PER) through the DOE in order to qualify.
Nuclear: The administration may expand support beyond the existing Section 45U credit, potentially encouraging new nuclear plant development as part of its energy-independence strategy. Many believe that nuclear thorium, which is four times more abundant than uranium and produces less radioactive waste, could be the technological and scientific breakthrough needed to see a clean-energy future.

Energy reality: Meeting the AI demand

A critical factor in the administration's clean-energy policy is the $500 billion Project Stargate initiative for data centers and artificial intelligence infrastructure. This ambitious program will require massive energy-capacity expansion across all sources. Every ounce of energy will be needed to power the AI revolution — creating practical incentives to maintain clean-energy development alongside fossil fuel expansion. Historically, data centers have been extremely energy hungry; thus, the US will need every bit of energy available — whether clean or fossil-based. “Addition” rather than “Transition” is likely the state of play for clean energy.

State-level response limited

If federal incentives are reduced, state policies are unlikely to fill the void completely — few states have implemented comparably robust clean-energy tax incentives. Those that exist, such as South Carolina's $35,000-capped solar incentive or Illinois' Enterprise Zone Program, lack the scale needed to drive major development.

The limited state response underscores the critical importance of federal tax policy for industry growth and reinforces the need for developers to engage in policy discussions at the national level.

Strategic industry response

For the clean-energy industry, several strategic approaches may help navigate the uncertain policy landscape:

Project safe harbors: Take full advantage of safe harbors and accelerate the rate of construction where possible. Completing the beginning of construction requirements for projects in 2025 provides the strongest protection against potential future changes, as any repeal or modification to current legislation could be safe harbored and unlikely to impact ongoing project development. A full repeal with retroactive provisions could still eliminate benefits; but the ongoing development of planned projects across the industry demonstrates comfort that this risk is minimal.
Diversify technology portfolios: Companies with investments across multiple clean-energy technologies may better weather technology-specific policy changes.
Emphasize economic benefits: The industry should continue highlighting job creation and other investment impacts, particularly in Republican-represented districts.
Prepare alternative-financing models: Developers should maintain relationships with traditional tax-equity providers as a contingency if transferability provisions change.
Monitor regulatory developments: Recent IRS and Treasury regulations (over 200 pages for Section 48 and 400 pages for Section 48E) demonstrate the complex and evolving implementation of these credits.

Looking ahead

While uncertainty exists, the clean-energy industry has demonstrated remarkable resilience through previous policy transitions. The economic momentum, technological advances and other market forces supporting renewable energy create powerful incentives for policy stability — even amid changing political dynamics.

By understanding the nuanced interplay between tax policy, economic realities and energy demands, industry stakeholders can make informed decisions while advocating for policies that support continued clean-energy growth and development.