The U.S. House Ways & Means Committee has issued the initial draft of the 2025 budget reconciliation bill, proposing sweeping revisions to clean energy tax incentives established under the Inflation Reduction Act (IRA).

The draft legislation outlines a fundamental realignment of the tax policy that favors utility-scale solar development and domestic manufacturing while eliminating or curtailing several benefits for individual consumers and companies with foreign supply chain dependencies.

At the center of the proposed changes is the extended phaseout schedule for the Investment Tax Credit (ITC) under Section 48E and the Production Tax Credit (PTC) under Section 45Y. Contrary to earlier expectations of a more abrupt phase-down beginning in 2026, the bill maintains the full value of these credits through 2028. After this time, the credits would decline gradually, dropping to 80% in 2029, 60% in 2030, 40% in 2031, and expiring by 2032.

While utility-scale players stand to benefit from the added clarity and extended runway for credit eligibility, the residential solar sector faces a setback. The proposed bill eliminates Section 25D of the residential clean energy credit at the end of 2025. This 30% tax credit has been a cornerstone of homeowner solar adoption, especially for middle-class families financing rooftop installations through cash or loans. Its removal would disproportionately impact companies that have built their models around direct-to-consumer equipment sales.

In a broader crackdown on foreign involvement in the clean energy supply chain, the bill introduces stringent new Foreign Entity of Concern (FEOC) provisions that could dramatically alter global sourcing dynamics. Modeled after the National Defense Authorization Act of 2021, the FEOC rules prohibit tax credit eligibility for projects using materials, components, or intellectual property linked to adversarial nations.

These restrictions apply to the 45X manufacturing credit and the 45Y and 48E credits and define “material assistance” broadly encompassing any critical minerals, subcomponents, recycling processes, or even design elements tied to an FEOC. Specific thresholds restrict ownership, board control, and financial influence from such entities, potentially excluding a large portion of Chinese-manufactured solar components even when final assembly occurs elsewhere.

This policy positions domestic manufacturers for a competitive advantage while creating obstacles for firms that maintain significant operations in or ties to China. The bill also outlines that wind products will be excluded from the 45X manufacturing credit starting in 2028 and that the credit itself would remain in full effect until 2031 before being eliminated without a phase-down in 2032.

Adding to the complexity of clean energy financing, the bill proposes eliminating ITC and PTC credit transferability two years after enactment. This rollback of a key IRA financing provision could hinder project economics for smaller or less capitalized developers who rely on credit transfers to monetize incentives. The loss of transferability would likely increase dependence on traditional tax equity financing structures, which can be more restrictive and less accessible to newer market entrants.

Beyond solar and manufacturing, the draft bill also calls for the removal of other clean energy incentives at the end of 2025, including tax credits for new and used electric vehicles (Sections 30D and 25E), commercial clean vehicles (45W), alternative fuel infrastructure, energy-efficient home improvements (25C), and new energy-efficient home construction (45L). These eliminations reflect a broader trend in the draft toward removing clean energy benefits for individuals while maintaining or adjusting them for large-scale projects.

If passed as written, the bill would represent one of the most significant rewrites of U.S. clean energy tax policy since the IRA’s passage.

Soon after assuming office as U.S. president, Donald Trump issued 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 proposed spending millions of dollars to promote clean energy.