July 28, 2025 • 25 mins
In this week’s episode of Tackling Tax, we’ll explore renewables and clean energy tax credits.
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Episode Transcript
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(00:00):
On this episode, we'll look into the world of renewables
and clean energy tax credits.
We welcome Troy Taylor, the leader
of the Inflation Reduction Act consulting team here at Forvis
Mazars and Tyler Beatty, the leader
of the renewable energy sector. From your one stop
for tax updates and analysis, I'm Iris.
And I'm Devin. It's Tuesday, July 22nd,
(00:23):
and this is Tackling Tax.
Before we get started with our much anticipated guest,
we always like to start our show with
(00:44):
what we call our Fast Four stories
that we think might be most impactful to you.
So let's dive right into our Fast Four stories of the week.
Starting on August 1st, multiple countries,
including those in the EU, Japan, South Korea, Canada,
(01:04):
and Mexico, will see new tariff rates.
Canada will see a 35% tariff with the EU
and Mexico slated for 30%, and Japan
and South Korea facing 25% tariff rates.
President Trump has also signaled his intent
to impose a single undisclosed tariff rate on more than 150
countries, representing smaller trade partners with the U.S.,
(01:26):
and also has plans to impose a 50% tariff on copper imports
and custom duties of up to 200% for pharmaceutical products.
President Trump's new tax act is about to make acquiring
and repaying government-funded student loans for higher ed
much more difficult due to a series of new changes
that will go into effect on July 1st of 2026. To start,
(01:48):
the Graduate Plus loan program,
which historically could be used to finance the full cost
of graduate programs, will be eliminated.
Students will have to rely on graduate loans,
which will be capped at a hundred thousand dollars
for master's degrees and $200,000
for professional degrees such
as law school and medical school.
Parent Plus loans will be capped at $20,000 annually
(02:08):
with a lifetime limit of $65,000 per child.
As for repayment, many options
for student loan repayment such as the save
and pay as you earn programs,
which can provide forgiveness after 20
or 25 years, will be eliminated, leaving taxpayers
with two choices: (02:24):
a fixed standard plan
or a new income-driven plan called the Repayment Assistance
Plan, providing for forgiveness after 30 years of payments.
Well, Devin, though, does that mean
that students will have a harder time
borrowing financing for higher ed?
You know, not necessarily.
I think this move in part is aimed at driving down the cost
(02:47):
of higher ed, which has soared in recent years.
However, I think many remain skeptical
that these limits are actually gonna have that effect.
So realistically, what we'll probably see is private lenders
stepping in to kind of fill that gap,
albeit at probably higher interest rates.
Well, as usual, with crypto, nothing is simple
(03:08):
or certain, including the passage
of the crypto legislation we spoke about on our June 24th
episode on digital assets and stablecoin.
Last Tuesday, a dozen hardline House Republicans voted no on
a procedural vote that would allow the House to debate
and vote on the legislation to fund the Pentagon for 2026
and three cryptocurrency bills.
(03:30):
These bills include the Senate's Genius Act
to establish a regulatory framework for stablecoins,
the Digital Asset Market Clarity Act of 2025
to establish a broader regulatory framework
and the anti-CBDC Surveillance State Act
to prevent the Fed Reserve from issuing a central
bank digital currency.
(03:51):
According to House Speaker Mike Johnson, the dozen voted no
in an effort to link the three crypto bills into one.
President Trump is motivated to get these items passed,
so I anticipate we'll see more movement in the coming days.
And finally, we would like to end this segment
with a public service announcement
regarding your IRS refunds.
Certainly something you do not wanna lose.
(04:12):
So back in March, Trump signed an executive order
that mandated that all federal disbursements,
including IRS Tax refunds, transition
to electronic fund transfers, EFTs,
by September 30th of this year.
Now, there are limited exceptions for hardships
and security, but the criteria for qualifications unclear
as are the steps that will be required
(04:33):
to claim the funds if no direct deposit
info has been provided.
So this may in part be due to a significant
turnover at the IRS as well
as this tight transition window that's leaving the IRSA little
time to adapt our systems, educate the public,
and then roll out this guidance.
But, Devin, is that gonna impact a bunch of people?
(04:53):
It seems like it could be a big deal.
You know, great question. By some estimates, nearly 6%
of U.S. taxpayers received their most recent refund via check,
so that really could impact millions of taxpayers
and were quickly approaching the extended tax filing
deadlines of September and October 15th.
So, if you're one of those taxpayers who have yet
(05:15):
to provide your direct deposit info,
you might consider making a note
that when you do file your return, that you do include
that info so that you can timely receive your refund.
On today's segment of the IRS with Iris,
we have Troy Taylor here
to talk about clean energy's tax credits
(05:37):
and Tyler Beatty to speak
to the renewable space more broadly.
So, Tyler is a partner here at Forvis Mazars
and is the leader of our renewables sector,
while Troy is also a partner,
but in our tax specialty practice,
and he's the leader of our Inflation Reduction Act
consulting practice.
So welcome to Tackling Tax, Troy and Tyler. Awesome.
(05:58):
Thanks for having us. Great.
Well, Troy, I thought we might just start with you.
Could you give us a quick recap, high level, you know,
what's in the act that affects clean energy?
Oh, there's quite a bit in the act that
that affects clean energy.
It kind of turned the
industry on its head to a certain degree.
(06:19):
Some credits were repealed,
some accelerated phase-out periods,
and then some entities won't be able
to claim the credit going forward if they meet the foreign
ownership and influence rules.
So, you know the high level, the repealed credits
are things like the clean energy
or the clean vehicle credits, both
(06:40):
for personal and commercial use.
Those are eliminated as of September 30th, 2025.
Alternative fuel vehicle
refueling property credits will also be terminated as
of June 30th, 2026.
The residential home efficiency credits,
so this is affecting personal individuals
and it includes the solar credit.
(07:01):
Those are terminated as of December 31st of this year,
so 2025, so kind of a much more immediate impact.
And then the 179D deduction, which is
for energy efficient commercial buildings,
that'll be terminated for projects that are starting
construction after June 30th, 2026.
(07:21):
Probably the most impactful changes, though, were through
commercial solar and wind space.
Those impacts are on sections 45Y and 48E.
So those are the new versions of the production tax credit
and the investment tax credits.
So any solar or wind project
that begins construction within 12 months
of when the act was signed, which that would put us out
(07:44):
to July 4th, 2026, those have to be
placed in service by the end of 2030.
So it shortens the timeline that we can claim those credits.
Then if a Solar or wind project begins construction
after that 12-month window, then they have
to place it in service before the end of 2027.
(08:04):
So that's only in what, two
and a half, less than two and a half years.
So, then there's also kind of a surprising,
or at least this provision is surprising a lot of people
that I talk to, but for solar
and wind projects, if they begin construction
after December 31st of this year, they, in order
to be eligible for the credit, they have
to source at least 40%,
(08:26):
or they can only source up to 40% of the materials
to what's called a prohibited foreign entity.
And an example would be a Chinese company.
There's a few other countries that are on
that list as well, but if, if they don't meet,
if they exceed that 40% of materials sourced to one
of those prohibited foreign entities,
(08:48):
then they're not eligible for the credit at all.
So, in talking to clients,
that one's been pretty surprising.
There's some other foreign entity rules where
some entities won't be able
to claim the credit at all at either if they have certain
foreign ownership
or if they made payments to some foreign entity.
So, I mean, that high level is, is, yeah, what was going on.
(09:09):
I think that's, you know,
and it sounds like that beginning
of construction date really is a big one.
And I know that there was an executive order out there
as well about, you know,
them talking about making the beginning
of construction more restrictive.
Have y'all been looking into that, too?
Is that something that folks should be watching?
(09:30):
It's gonna be a huge part of
what we're advising clients on, on a go forward basis.
And, you know, we're hoping that
the new provisions
or the new guidance doesn't change the historical way
that we've looked at beginning of construction
'cause that's been established for, you know, 10 plus years.
But there is definitely potential that they're going to make
that more restrictive.
So we'll know more and hopefully the next month
(09:51):
or two of how much more restricted, if at all, they're going
to make those rules.
Awesome. Well, Tyler, let me turn to you real quick.
You know, you're not necessarily a tax guy.
We might have adopted you to be a tax guy,
but you do have sort of a broader look at the
industry, high level.
So how do you see all of
(10:12):
what Troy just talked about affecting the industry, right,
as a whole, and what are some
of the other maybe broader economic impacts of all of this?
Yeah, great question, Iris.
So obviously we're in a period of change for the most
of the clients that I serve in the energy space.
I think some of them recollect back to
(10:33):
pre-IRA when the
when the tax credits were planned cliff,
which is when the safe harbor provisions,
and beginning of construction were really important.
And then the Inflation Reduction Act was passed
and there was a period of stability,
and now we're back into a period of change.
So, I think, you know, it's important that most
(10:53):
of our clients have been through this before.
But definitely to Troy's point, spending a lot
of time unpacking the new changes to the law,
particularly to tax credits. I think most are spending time
with their development pipeline
to understand, obviously, they were forecasted
beginning of construction time.
(11:14):
Some of those projects might get accelerated.
There's probably gonna be a refocus on
the upper echelon quality of projects
to ensure those are accelerated and started earlier
and then just, you know, a reassessment
of their entire project pipeline
and shifting to determine, you know,
as we've talked about, as this group has talked about
(11:35):
and probably well known,
one thing I think everybody's in agreement on is
that energy demand's gonna continue
to go up in the foreseeable future.
Some of the quickest
and most efficient means to
generate energy is still solar.
You know, there's been conversations about natural gas
and turbines and those being delayed for five years.
(11:58):
So we're still in this period of time where solar
probably is the quickest
and most efficient means to generate electricity.
So I think there's, there's some tailwinds related to that.
But again, we're in a period of change.
Our developers, our IPPs, are working through that.
And to Troy's point, and,
(12:19):
and Iris the point you brought up as well,
the executive order
and further clarification on what beginning
of construction is gonna be and have a safe harbor for that,
will be extremely important.
So, you know, you talk about pipeline a little
bit. What happens, I mean, some of these projects, right,
(12:39):
have been funded already, probably, and planned.
So what happens to both developers
and maybe the banks that already have funded projects
that are not gonna be feasible anymore, do you know?
Yeah, great question.
So, you know,
you'll probably hear capital stacked
being talked about a lot.
And so, capital stacked is, you know, we have,
(13:02):
the industry is extremely capital intensive.
When you're looking at a capital stack, you're trying
to determine where the capital's coming from
to fund those projects.
So obviously pretty significant portion historically
of the capital stack has been the tax credits, right?
So I think we're gonna be through
a reassessment exercise, particularly of some
of those later stage projects.
(13:23):
Ours, they may not necessarily be funded,
but there's definitely been leveraged investment into
the initial development activities for those projects.
And when you extrapolate that across a number
of projects
and you look at it in the aggregate,
there's a significant amount of investment
in development pipelines.
So what that means is if, if they can't adhere to the beginning
(13:47):
of construction
or at which point those projects will get built,
we're in a different environment,
that means your capital stack changes, right?
Which means, in layman's terms,
construction prices are gonna have to go down.
Development fees,
that's a big part will come down.
And then I think one piece that not a lot of people
(14:12):
want to talk about is energy pricing is likely going
up in the near term.
Sounds like a lot of moving parts there.
You know, I don't know if you've,
I'm sure you have paid attention to, like,
what other countries are doing and the global energy trends
and, you know, is solar being pursued elsewhere?
(14:33):
Like how is, how do you see this aligning
with global trends in energy?
Yeah, great question.
So I think it's, it's hard to talk globally without,
you know, a specific country,
but I think in general,
I think renewable energy plays a role as part
of every single
(14:55):
country's plan for energy demand.
I think that, you know, one thing that folks don't like
to talk about is there's probably, in relation
to the tax credits, there probably is some bloat in the
United States because of the tax credits.
So, you know, we've, we work with a lot
of European investors and I've heard comments time
and time again about they can build solar projects for
(15:18):
maybe 60% of what it costs
to build a solar project in the United States.
So I think some of that's just inherent to
having the tax credits.
But I think from,
if you just think about it from an energy technology
agnostic perspective, we need more electrons.
I think renewables will play a role in producing
(15:39):
and providing those electrons,
not just in the United States, but globally.
So another interesting piece is, you know,
we talk about the FEOC rules in China.
There's tons of information out there.
China appears to have doubled down on solar.
They're putting a bunch of electrons
and a bunch of solar projects
(16:02):
and a bunch of electrons on their grid,
presumably preparing for the energy demand that's
to come related to data centers and AI and everything else.
So that's, that's an interesting piece.
If you look at the graph, demand for electrons
for the United States has stayed pretty consistent
over the past 10 to 15 years, where China, no pun intended,
(16:25):
looks like a rocket ship that went off with
the amount of gigawatts deployed to their grid,
and it's primarily all solar.
Awesome. Well, you know, that ties right into
what I was gonna talk to Troy about,
who also has touched on sort of foreign entity of concern,
you know, those provisions.
(16:45):
How do you see those affecting
I mean, your clients?
So, you know, there still is certain clean energy property
that qualifies for credits, right?
And so, you know, you're still gonna be helping folks
through all of those concerns.
So what are the different things
that they should be looking at with FEOC?
(17:09):
Great question, Iris.
I think probably the first suggestion I would make
is to be talking to your legal counsel
about these restrictions.
I think they're a great, would be a great resource.
But I think as, as we think about the evolution
of the industry and these rules, I think most
of our clients are going to have to start having
(17:30):
a deeper understanding of their supply chain
and where materials are being sourced from to ensure
that they can adhere to these new rules and regulations.
And probably just as important, working
with their international suppliers
and vendors, they're likely going to have
to start requiring certifications from those suppliers
(17:52):
and vendors that they're also adhering
to these FEOC regulations.
And the last comment I would make is
to be proactive about that, right?
Because as they, our clients work to still monetize
the tax credits,
particularly the transferability provisions didn't go away.
(18:12):
So if they're trying to transfer a credit as
as counterparties, as insurance,
and other folks are doing their diligence,
these questions are gonna come up.
And then similarly, right,
if they're using the credits on their own returns,
they'll need that documentation to ensure
compliance in the event
of an an IRS audit or something else.
(18:36):
Yeah, I'll add to that.
I mean, I think Tyler's
hitting the nail on the head here, you just,
it's attention to detail, right?
You just gotta make sure that, you know, look at
your payment terms, your loan structure,
your ownership structure.
Do you, are you running afoul of any
of these new FEOC rules, which, you know,
it can get relatively complex,
(18:58):
but especially your supply chain.
You know, I'd say from a solar perspective, the majority
of solar panels historically have been sourced to some
of the companies that would be on this
prohibited foreign entity list.
And so what I expect to see is a shift from those countries
or those entities to other countries.
(19:19):
And, but you really have to understand the, your,
what you need from a material perspective for any
of your projects, and then be able to understand the rules
of where those are being sourced from.
And then another play would be, you know,
look at domestic content credit, you know, that
that additional bonus credit where to source those
(19:41):
materials to a U.S. manufacturer,
you can take advantage of that, too.
Awesome. Any other sort of planning strategies?
Like you touched on that as being one.
Anything else you're talking
to your clients about recently, Troy?
Yeah, a lot of it's timing.
You know, we mentioned that, so beginning of
construction is going to be huge from a solar
(20:05):
and wind perspective on these energy credits.
So you need to look through your pool of
what projects you had planned over the next five years
and figure out, would it make sense to move any
of those forward either into, you know, start construction
by the end of 25 to avoid these,
the prohibited foreign entity material
assistance rules altogether.
(20:26):
Or if you can't do that, can you get it in
before, start construction before July 4th, 2026,
and then you have all the way until the end of 2030
to place it in service.
But it's just gonna be evaluating
what you planned on doing.
And then figuring out is there a way
that we can speed things up in order to take advantage
of some of these deadlines?
(20:47):
And, you know, like I mentioned,
the domestic content credit could be significant, too, just
because you can't source solar panels
from, say, China.
You can then source it from other countries
that are not on that list,
but it might make more sense to source it
to a U.S. manufacturer to get that additional 10% credit,
which would offset at least a portion of those,
(21:10):
the incremental costs to source it from a
non-China manufacturer
or somebody else that's at a lower cost.
Great point. Well, I would be remiss, Tyler,
if I did not bring up sort of some
of the assurance implications of this? I know
that's the side of the house that you sit on.
Anything quickly for financial reporting
(21:30):
that people should be paying attention to?
Yeah, great question.
So, I think there should be a myriad of impacts
from this bill
from a financial statement perspective, right?
You have lenders
and facilities that have lended on development capital.
As we talked about earlier. You know, some
(21:53):
of our developers and, you know,
some folks in the industry plan
for a 10 year project timeline.
Well, that got significantly accelerated.
So, there's a, you know,
there's a transition period here,
and I think most of our clients in renewable energy are
having to reassess those development project pipelines
and determine, you know, are the costs recoverable
(22:15):
and if the costs aren't recoverable,
that could be indicative of an impairment,
or an impairment charge.
And then on the other side, you know, it's gonna affect
your allowance for credit losses and CECL.
So I think those are two significant items.
The other items might be, you know,
renewable energy always seems to have, the pace is quick.
(22:35):
I think it's, you know, gonna become quicker.
I think Troy
provided some good strategies in changing.
I think one thing you know
to think about is there's likely gonna be supply chain
constraints as well as all developers are trying
to source materials to begin construction.
So I think the pace is going to increase as well
(22:57):
in trying to source those materials and,
and not just create plans
but execute on those plans, the pace is gonna pick up.
So, but yeah, I think you,
from a financial statement perspective,
you're gonna have impairment indicators.
Obviously there are assets that prior to the bill
were recoverable. Subsequent to the bill,
(23:18):
they may not be recoverable.
And the impact of that,
and then again, as we talked about, a lot
of those costs were leveraged costs.
So, having conversations
and trying to figure out how it's settled
will be important and
something we will be focused on with our clients
as we're working through financial reporting requirements,
(23:39):
into the next fiscal year.
Well great. Well, this is all good stuff.
Thank you guys for joining so much.
We will hopefully have y'all back the more info we get.
So, we appreciate your time today
and we'll see you next time.
(24:00):
Each episode, we'll
bring you what we call a focused FORsight
of the week, an article
or recording that might be of interest to you.
This week's Focus FORsight is a recording
of a webinar we hosted last week titled Second Quarter Tax
Update Policy and More. Washington National Tax goes
through the Act, and Iris takes some time
to focus on clean energy policies that were discussed today.
So keep an eye out for that this week
(24:22):
and a summary of our FORsight from Troy
on these topics as well.
Now, you can always access our FORsights on the Washington
National Tax website or the Forvis Mazars US
website more broadly.
And that's our show. Thanks
for joining. Remember to subscribe
and listen for our next episode.
Until next time.
On this episode, we'll look into the world of renewables
and clean energy tax credits.
We welcome Troy Taylor, the leader
of the Inflation Reduction Act consulting team here at Forvis
Mazars and Tyler Beatty, the leader
of the renewable energy sector. From your one stop
for tax updates and analysis, I'm Iris.
And I'm Devin. It's Tuesday, July 22nd,
(00:23):
and this is Tackling Tax.
Before we get started with our much anticipated guest,
we always like to start our show with
(00:44):
what we call our Fast Four stories
that we think might be most impactful to you.
So let's dive right into our Fast Four stories of the week.
Starting on August 1st, multiple countries,
including those in the EU, Japan, South Korea, Canada,
(01:04):
and Mexico, will see new tariff rates.
Canada will see a 35% tariff with the EU
and Mexico slated for 30%, and Japan
and South Korea facing 25% tariff rates.
President Trump has also signaled his intent
to impose a single undisclosed tariff rate on more than 150
countries, representing smaller trade partners with the U.S.,
(01:26):
and also has plans to impose a 50% tariff on copper imports
and custom duties of up to 200% for pharmaceutical products.
President Trump's new tax act is about to make acquiring
and repaying government-funded student loans for higher ed
much more difficult due to a series of new changes
that will go into effect on July 1st of 2026. To start,
(01:48):
the Graduate Plus loan program,
which historically could be used to finance the full cost
of graduate programs, will be eliminated.
Students will have to rely on graduate loans,
which will be capped at a hundred thousand dollars
for master's degrees and $200,000
for professional degrees such
as law school and medical school.
Parent Plus loans will be capped at $20,000 annually
(02:08):
with a lifetime limit of $65,000 per child.
As for repayment, many options
for student loan repayment such as the save
and pay as you earn programs,
which can provide forgiveness after 20
or 25 years, will be eliminated, leaving taxpayers
with two choices: (02:24):
a fixed standard plan
or a new income-driven plan called the Repayment Assistance
Plan, providing for forgiveness after 30 years of payments.
Well, Devin, though, does that mean
that students will have a harder time
borrowing financing for higher ed?
You know, not necessarily.
I think this move in part is aimed at driving down the cost
(02:47):
of higher ed, which has soared in recent years.
However, I think many remain skeptical
that these limits are actually gonna have that effect.
So realistically, what we'll probably see is private lenders
stepping in to kind of fill that gap,
albeit at probably higher interest rates.
Well, as usual, with crypto, nothing is simple
(03:08):
or certain, including the passage
of the crypto legislation we spoke about on our June 24th
episode on digital assets and stablecoin.
Last Tuesday, a dozen hardline House Republicans voted no on
a procedural vote that would allow the House to debate
and vote on the legislation to fund the Pentagon for 2026
and three cryptocurrency bills.
(03:30):
These bills include the Senate's Genius Act
to establish a regulatory framework for stablecoins,
the Digital Asset Market Clarity Act of 2025
to establish a broader regulatory framework
and the anti-CBDC Surveillance State Act
to prevent the Fed Reserve from issuing a central
bank digital currency.
(03:51):
According to House Speaker Mike Johnson, the dozen voted no
in an effort to link the three crypto bills into one.
President Trump is motivated to get these items passed,
so I anticipate we'll see more movement in the coming days.
And finally, we would like to end this segment
with a public service announcement
regarding your IRS refunds.
Certainly something you do not wanna lose.
(04:12):
So back in March, Trump signed an executive order
that mandated that all federal disbursements,
including IRS Tax refunds, transition
to electronic fund transfers, EFTs,
by September 30th of this year.
Now, there are limited exceptions for hardships
and security, but the criteria for qualifications unclear
as are the steps that will be required
(04:33):
to claim the funds if no direct deposit
info has been provided.
So this may in part be due to a significant
turnover at the IRS as well
as this tight transition window that's leaving the IRSA little
time to adapt our systems, educate the public,
and then roll out this guidance.
But, Devin, is that gonna impact a bunch of people?
(04:53):
It seems like it could be a big deal.
You know, great question. By some estimates, nearly 6%
of U.S. taxpayers received their most recent refund via check,
so that really could impact millions of taxpayers
and were quickly approaching the extended tax filing
deadlines of September and October 15th.
So, if you're one of those taxpayers who have yet
(05:15):
to provide your direct deposit info,
you might consider making a note
that when you do file your return, that you do include
that info so that you can timely receive your refund.
On today's segment of the IRS with Iris,
we have Troy Taylor here
to talk about clean energy's tax credits
(05:37):
and Tyler Beatty to speak
to the renewable space more broadly.
So, Tyler is a partner here at Forvis Mazars
and is the leader of our renewables sector,
while Troy is also a partner,
but in our tax specialty practice,
and he's the leader of our Inflation Reduction Act
consulting practice.
So welcome to Tackling Tax, Troy and Tyler. Awesome.
(05:58):
Thanks for having us. Great.
Well, Troy, I thought we might just start with you.
Could you give us a quick recap, high level, you know,
what's in the act that affects clean energy?
Oh, there's quite a bit in the act that
that affects clean energy.
It kind of turned the
industry on its head to a certain degree.
(06:19):
Some credits were repealed,
some accelerated phase-out periods,
and then some entities won't be able
to claim the credit going forward if they meet the foreign
ownership and influence rules.
So, you know the high level, the repealed credits
are things like the clean energy
or the clean vehicle credits, both
(06:40):
for personal and commercial use.
Those are eliminated as of September 30th, 2025.
Alternative fuel vehicle
refueling property credits will also be terminated as
of June 30th, 2026.
The residential home efficiency credits,
so this is affecting personal individuals
and it includes the solar credit.
(07:01):
Those are terminated as of December 31st of this year,
so 2025, so kind of a much more immediate impact.
And then the 179D deduction, which is
for energy efficient commercial buildings,
that'll be terminated for projects that are starting
construction after June 30th, 2026.
(07:21):
Probably the most impactful changes, though, were through
commercial solar and wind space.
Those impacts are on sections 45Y and 48E.
So those are the new versions of the production tax credit
and the investment tax credits.
So any solar or wind project
that begins construction within 12 months
of when the act was signed, which that would put us out
(07:44):
to July 4th, 2026, those have to be
placed in service by the end of 2030.
So it shortens the timeline that we can claim those credits.
Then if a Solar or wind project begins construction
after that 12-month window, then they have
to place it in service before the end of 2027.
(08:04):
So that's only in what, two
and a half, less than two and a half years.
So, then there's also kind of a surprising,
or at least this provision is surprising a lot of people
that I talk to, but for solar
and wind projects, if they begin construction
after December 31st of this year, they, in order
to be eligible for the credit, they have
to source at least 40%,
(08:26):
or they can only source up to 40% of the materials
to what's called a prohibited foreign entity.
And an example would be a Chinese company.
There's a few other countries that are on
that list as well, but if, if they don't meet,
if they exceed that 40% of materials sourced to one
of those prohibited foreign entities,
(08:48):
then they're not eligible for the credit at all.
So, in talking to clients,
that one's been pretty surprising.
There's some other foreign entity rules where
some entities won't be able
to claim the credit at all at either if they have certain
foreign ownership
or if they made payments to some foreign entity.
So, I mean, that high level is, is, yeah, what was going on.
(09:09):
I think that's, you know,
and it sounds like that beginning
of construction date really is a big one.
And I know that there was an executive order out there
as well about, you know,
them talking about making the beginning
of construction more restrictive.
Have y'all been looking into that, too?
Is that something that folks should be watching?
(09:30):
It's gonna be a huge part of
what we're advising clients on, on a go forward basis.
And, you know, we're hoping that
the new provisions
or the new guidance doesn't change the historical way
that we've looked at beginning of construction
'cause that's been established for, you know, 10 plus years.
But there is definitely potential that they're going to make
that more restrictive.
So we'll know more and hopefully the next month
(09:51):
or two of how much more restricted, if at all, they're going
to make those rules.
Awesome. Well, Tyler, let me turn to you real quick.
You know, you're not necessarily a tax guy.
We might have adopted you to be a tax guy,
but you do have sort of a broader look at the
industry, high level.
So how do you see all of
(10:12):
what Troy just talked about affecting the industry, right,
as a whole, and what are some
of the other maybe broader economic impacts of all of this?
Yeah, great question, Iris.
So obviously we're in a period of change for the most
of the clients that I serve in the energy space.
I think some of them recollect back to
(10:33):
pre-IRA when the
when the tax credits were planned cliff,
which is when the safe harbor provisions,
and beginning of construction were really important.
And then the Inflation Reduction Act was passed
and there was a period of stability,
and now we're back into a period of change.
So, I think, you know, it's important that most
(10:53):
of our clients have been through this before.
But definitely to Troy's point, spending a lot
of time unpacking the new changes to the law,
particularly to tax credits. I think most are spending time
with their development pipeline
to understand, obviously, they were forecasted
beginning of construction time.
(11:14):
Some of those projects might get accelerated.
There's probably gonna be a refocus on
the upper echelon quality of projects
to ensure those are accelerated and started earlier
and then just, you know, a reassessment
of their entire project pipeline
and shifting to determine, you know,
as we've talked about, as this group has talked about
(11:35):
and probably well known,
one thing I think everybody's in agreement on is
that energy demand's gonna continue
to go up in the foreseeable future.
Some of the quickest
and most efficient means to
generate energy is still solar.
You know, there's been conversations about natural gas
and turbines and those being delayed for five years.
(11:58):
So we're still in this period of time where solar
probably is the quickest
and most efficient means to generate electricity.
So I think there's, there's some tailwinds related to that.
But again, we're in a period of change.
Our developers, our IPPs, are working through that.
And to Troy's point, and,
(12:19):
and Iris the point you brought up as well,
the executive order
and further clarification on what beginning
of construction is gonna be and have a safe harbor for that,
will be extremely important.
So, you know, you talk about pipeline a little
bit. What happens, I mean, some of these projects, right,
(12:39):
have been funded already, probably, and planned.
So what happens to both developers
and maybe the banks that already have funded projects
that are not gonna be feasible anymore, do you know?
Yeah, great question.
So, you know,
you'll probably hear capital stacked
being talked about a lot.
And so, capital stacked is, you know, we have,
(13:02):
the industry is extremely capital intensive.
When you're looking at a capital stack, you're trying
to determine where the capital's coming from
to fund those projects.
So obviously pretty significant portion historically
of the capital stack has been the tax credits, right?
So I think we're gonna be through
a reassessment exercise, particularly of some
of those later stage projects.
(13:23):
Ours, they may not necessarily be funded,
but there's definitely been leveraged investment into
the initial development activities for those projects.
And when you extrapolate that across a number
of projects
and you look at it in the aggregate,
there's a significant amount of investment
in development pipelines.
So what that means is if, if they can't adhere to the beginning
(13:47):
of construction
or at which point those projects will get built,
we're in a different environment,
that means your capital stack changes, right?
Which means, in layman's terms,
construction prices are gonna have to go down.
Development fees,
that's a big part will come down.
And then I think one piece that not a lot of people
(14:12):
want to talk about is energy pricing is likely going
up in the near term.
Sounds like a lot of moving parts there.
You know, I don't know if you've,
I'm sure you have paid attention to, like,
what other countries are doing and the global energy trends
and, you know, is solar being pursued elsewhere?
(14:33):
Like how is, how do you see this aligning
with global trends in energy?
Yeah, great question.
So I think it's, it's hard to talk globally without,
you know, a specific country,
but I think in general,
I think renewable energy plays a role as part
of every single
(14:55):
country's plan for energy demand.
I think that, you know, one thing that folks don't like
to talk about is there's probably, in relation
to the tax credits, there probably is some bloat in the
United States because of the tax credits.
So, you know, we've, we work with a lot
of European investors and I've heard comments time
and time again about they can build solar projects for
(15:18):
maybe 60% of what it costs
to build a solar project in the United States.
So I think some of that's just inherent to
having the tax credits.
But I think from,
if you just think about it from an energy technology
agnostic perspective, we need more electrons.
I think renewables will play a role in producing
(15:39):
and providing those electrons,
not just in the United States, but globally.
So another interesting piece is, you know,
we talk about the FEOC rules in China.
There's tons of information out there.
China appears to have doubled down on solar.
They're putting a bunch of electrons
and a bunch of solar projects
(16:02):
and a bunch of electrons on their grid,
presumably preparing for the energy demand that's
to come related to data centers and AI and everything else.
So that's, that's an interesting piece.
If you look at the graph, demand for electrons
for the United States has stayed pretty consistent
over the past 10 to 15 years, where China, no pun intended,
(16:25):
looks like a rocket ship that went off with
the amount of gigawatts deployed to their grid,
and it's primarily all solar.
Awesome. Well, you know, that ties right into
what I was gonna talk to Troy about,
who also has touched on sort of foreign entity of concern,
you know, those provisions.
(16:45):
How do you see those affecting
I mean, your clients?
So, you know, there still is certain clean energy property
that qualifies for credits, right?
And so, you know, you're still gonna be helping folks
through all of those concerns.
So what are the different things
that they should be looking at with FEOC?
(17:09):
Great question, Iris.
I think probably the first suggestion I would make
is to be talking to your legal counsel
about these restrictions.
I think they're a great, would be a great resource.
But I think as, as we think about the evolution
of the industry and these rules, I think most
of our clients are going to have to start having
(17:30):
a deeper understanding of their supply chain
and where materials are being sourced from to ensure
that they can adhere to these new rules and regulations.
And probably just as important, working
with their international suppliers
and vendors, they're likely going to have
to start requiring certifications from those suppliers
(17:52):
and vendors that they're also adhering
to these FEOC regulations.
And the last comment I would make is
to be proactive about that, right?
Because as they, our clients work to still monetize
the tax credits,
particularly the transferability provisions didn't go away.
(18:12):
So if they're trying to transfer a credit as
as counterparties, as insurance,
and other folks are doing their diligence,
these questions are gonna come up.
And then similarly, right,
if they're using the credits on their own returns,
they'll need that documentation to ensure
compliance in the event
of an an IRS audit or something else.
(18:36):
Yeah, I'll add to that.
I mean, I think Tyler's
hitting the nail on the head here, you just,
it's attention to detail, right?
You just gotta make sure that, you know, look at
your payment terms, your loan structure,
your ownership structure.
Do you, are you running afoul of any
of these new FEOC rules, which, you know,
it can get relatively complex,
(18:58):
but especially your supply chain.
You know, I'd say from a solar perspective, the majority
of solar panels historically have been sourced to some
of the companies that would be on this
prohibited foreign entity list.
And so what I expect to see is a shift from those countries
or those entities to other countries.
(19:19):
And, but you really have to understand the, your,
what you need from a material perspective for any
of your projects, and then be able to understand the rules
of where those are being sourced from.
And then another play would be, you know,
look at domestic content credit, you know, that
that additional bonus credit where to source those
(19:41):
materials to a U.S. manufacturer,
you can take advantage of that, too.
Awesome. Any other sort of planning strategies?
Like you touched on that as being one.
Anything else you're talking
to your clients about recently, Troy?
Yeah, a lot of it's timing.
You know, we mentioned that, so beginning of
construction is going to be huge from a solar
(20:05):
and wind perspective on these energy credits.
So you need to look through your pool of
what projects you had planned over the next five years
and figure out, would it make sense to move any
of those forward either into, you know, start construction
by the end of 25 to avoid these,
the prohibited foreign entity material
assistance rules altogether.
(20:26):
Or if you can't do that, can you get it in
before, start construction before July 4th, 2026,
and then you have all the way until the end of 2030
to place it in service.
But it's just gonna be evaluating
what you planned on doing.
And then figuring out is there a way
that we can speed things up in order to take advantage
of some of these deadlines?
(20:47):
And, you know, like I mentioned,
the domestic content credit could be significant, too, just
because you can't source solar panels
from, say, China.
You can then source it from other countries
that are not on that list,
but it might make more sense to source it
to a U.S. manufacturer to get that additional 10% credit,
which would offset at least a portion of those,
(21:10):
the incremental costs to source it from a
non-China manufacturer
or somebody else that's at a lower cost.
Great point. Well, I would be remiss, Tyler,
if I did not bring up sort of some
of the assurance implications of this? I know
that's the side of the house that you sit on.
Anything quickly for financial reporting
(21:30):
that people should be paying attention to?
Yeah, great question.
So, I think there should be a myriad of impacts
from this bill
from a financial statement perspective, right?
You have lenders
and facilities that have lended on development capital.
As we talked about earlier. You know, some
(21:53):
of our developers and, you know,
some folks in the industry plan
for a 10 year project timeline.
Well, that got significantly accelerated.
So, there's a, you know,
there's a transition period here,
and I think most of our clients in renewable energy are
having to reassess those development project pipelines
and determine, you know, are the costs recoverable
(22:15):
and if the costs aren't recoverable,
that could be indicative of an impairment,
or an impairment charge.
And then on the other side, you know, it's gonna affect
your allowance for credit losses and CECL.
So I think those are two significant items.
The other items might be, you know,
renewable energy always seems to have, the pace is quick.
(22:35):
I think it's, you know, gonna become quicker.
I think Troy
provided some good strategies in changing.
I think one thing you know
to think about is there's likely gonna be supply chain
constraints as well as all developers are trying
to source materials to begin construction.
So I think the pace is going to increase as well
(22:57):
in trying to source those materials and,
and not just create plans
but execute on those plans, the pace is gonna pick up.
So, but yeah, I think you,
from a financial statement perspective,
you're gonna have impairment indicators.
Obviously there are assets that prior to the bill
were recoverable. Subsequent to the bill,
(23:18):
they may not be recoverable.
And the impact of that,
and then again, as we talked about, a lot
of those costs were leveraged costs.
So, having conversations
and trying to figure out how it's settled
will be important and
something we will be focused on with our clients
as we're working through financial reporting requirements,
(23:39):
into the next fiscal year.
Well great. Well, this is all good stuff.
Thank you guys for joining so much.
We will hopefully have y'all back the more info we get.
So, we appreciate your time today
and we'll see you next time.
(24:00):
Each episode, we'll
bring you what we call a focused FORsight
of the week, an article
or recording that might be of interest to you.
This week's Focus FORsight is a recording
of a webinar we hosted last week titled Second Quarter Tax
Update Policy and More. Washington National Tax goes
through the Act, and Iris takes some time
to focus on clean energy policies that were discussed today.
So keep an eye out for that this week
(24:22):
and a summary of our FORsight from Troy
on these topics as well.
Now, you can always access our FORsights on the Washington
National Tax website or the Forvis Mazars US
website more broadly.
And that's our show. Thanks
for joining. Remember to subscribe
and listen for our next episode.
Until next time.
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