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2026

Energy Policy Landscape
in the US

Legislation Deep-Dive

03 | Legislation Deep-Dive

The OB3 Act and Revised Beginning of Construction (“BoC”) Framework

The OB3 Act and IRS Notice 2025-42 provide clearer guidance on how clean energy projects qualify for federal incentives, though ultimately uncertainty remains until FEOC compliance rules are formally issued. Nevertheless, the updates simplify compliance expectations and make it easier for developers to understand what constitutes acceptable evidence of progress.

A key shift is the move away from administrative “continuous efforts” toward verifiable construction activity. Eligibility now relies on visible physical work, making progress easier to confirm and reducing ambiguity. These refinements result in more predictable qualification criteria and a more straightforward documentation process.

Key Legislative and Compliance Milestones under the OB3 Act and IRS Notice 2025-42

Provision / Rule Key Requirement/Timeline Implications
The OB3 Act Enactment (July 4, 2025) Introduces accelerated sunset for wind and solar tax credits while preserving eligibility for other zero- or net- negative-emission technologies Restores legislative certainty, promotes fiscal discipline, and signals a pivot toward near-term deployment and manufacturing- linked incentives
Construction Start Deadline Wind and solar projects must begin physical work by July 4, 2026, to secure full-value credits, though projects subject to FEOC requirements must complete FEOC “safe harboring” by December 31, 2025. Creates a compressed window for project mobilization and financing, concentrating near- term construction activity
PIS Deadline Projects starting after July 4, 2026, must be operational by December 31, 2027, to claim the full credit; later completions are ineligible Establishes a firm completion cliff that concentrates capital deployment and project execution activity before 2028
Grandfathering of Pre-2025 Projects Projects begun before September 2, 2025, retain prior “safe harbor” and continuity treatment Protects existing pipelines and tax-equity structures from retroactive rule changes
Physical Work Test (BoC Standard) Only tangible on-site (e.g., installation of mounting racks, torque tubes, piles, etc.) or project-specific off-site work (e.g., manufacturing project-specific components such as PV module racking assemblies, nacelles, blades, etc., under written contracts) qualifies. In parallel, many developers are also pursuing equipment “safe harboring” to lock in eligibility under current rules. Ensures measurable progress and documentation discipline
Continuity Requirement Projects must maintain a continuous program of physical work of significant nature; former “continuous efforts” standard, where administrative actions such as engineering, permitting, or procurement could help maintain eligibility, is eliminated Strengthens compliance oversight and reduces audit risk
Excusable Delays Projects encountering verified excusable disruptions (e.g., permitting or weather) may pause work without disqualification, provided documentation substantiates the interruption Provides limited flexibility while preserving compliance integrity
Phase Down for Other Technologies Storage, geothermal, hydro, advanced nuclear, and fuel- cell projects: 100% credit ≤ 2033, 75% in 2034, 50% in 2035 Extends investment runway for emerging sectors and diversifies capital flows
Sources: US Congress, IRS, FOSS & Company, The Tax Law Center, Walker Blue, Norton Rose Fulbright
Beyond the headline deadlines, Notice 2025-42 also refines the mechanics of project qualification: how construction start dates are recognized, how credits get transferred between owners, and what documentation developers must maintain to protect credit eligibility.

Compliance Rules for BoC, Project Transfers, and Documentation Standards

Aspect Key Provision Implications
Multiple BoC Dates Different compliance tests (e.g., prevailing wage rules, foreign-entity rules) may use different start dates Only the PTC/ITC credit-termination timeline is governed by Notice 2025-42
Project Transfers Physical progress can carry over in transfers between related parties (entities that share ownership or control) but must be re- established in a sale to an unrelated party In a transfer consisting solely of tangible property to an unrelated transferee, the buyer cannot rely on previously completed physical work to establish the beginning-of-construction status and would need to satisfy the relevant BoC test anew.
Single-Project Treatment Facilities sharing ownership, permits, or financing are treated as one project Time of construction and operational tests apply at the consolidated project level
80/20 Rule for Retrofits Retrofitted facilities qualify if ≥ 80% of total value derives from new components, ensuring that only projects with substantial upgrades are treated as newly placed in service Ensures credit support goes to significant new investment
Documentation/ Burden of Proof Developers must retain contemporaneous evidence (photos, logs, engineering reports, manufacturing contracts) Required to substantiate both construction and continuity compliance; critical for IRS audits or transferability opinions
Sources: US Congress, IRS, FOSS & Company, The Tax Law Center, Walker Blue

The OB3 Act Timeline for Solar and Wind ITC and PTC

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Source: Crux Climate

The OB3 Act Timeline for Storage, Nuclear and Other Technologies

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Source: FOSS & Company

Investor Perspective

For sponsors and investors, the OB3 Act’s implementation arguably marks a transition from recent policy uncertainty to predictable, performance-based opportunities. Liquidity remains strong and the next 24–30 months represent a decisive window to initiate or finance projects that align with the updated construction timing and operational timing requirements. Strategic pipeline management now hinges on four key buckets:

  1. Grandfathered assets that keep prior status
  2. In-progress projects able to document physical work by July 2026, as well as those commencing after July 4, 2026, but becoming operational before December 31, 2027
  3. Distributed generation ≤ 1.5MW AC which may retain broader flexibility
  4. Post-2028 solar and wind projects competing without the benefit of ITC and PTC, an area in which developers, IPPs and investors are already actively transacting.

Beyond 2027, as new solar and wind projects increasingly compete without the benefit of ITC and PTC support, capital is already reallocating toward asset classes that enhance grid flexibility and monetise volatility. Storage – particularly solar-plus-storage configurations – and distributed energy platforms that enable virtual power plants (including DG, community solar, and microgrids) are attracting growing investment as they offer diversified revenue stacks and reduced exposure to single-policy outcomes.

In parallel, advanced manufacturing credits are viewed as comparatively lower-risk and more durable than generation-linked incentives, with domestic content and FEOC considerations expected to drive continued expansion in eligible credit supply. While hydrogen and carbon capture continue to benefit from policy support, investor activity remains selective as project-level economics and execution risk constrain near-term deployment. Acting now allows developers and investors to capture value under current incentive structures while positioning portfolios for a more market-driven clean-energy investment landscape.

Foreign-entity Restrictions, Material Assistance Requirements, and Penalties for Non- Compliance

The OB3 Act strengthens supply chain rules for projects seeking PTC/ITC credits by limiting the involvement of restricted foreign entities and raising expectations around domestic and allied sourcing. These measures ensure that federally-supported clean energy projects rely on transparent, reliable, and well-documented supply chains. The broader compliance framework under the OB3 Act builds on precedents from § 30D of the Internal Revenue Code (the Clean Vehicle Credit), which first introduced restricted-foreign-entity-based sourcing and ownership limits for electric vehicles. The same four compliance pillars (ownership, contractual control, material assistance, and documentation) now extend to clean-power and energy-storage projects.

Compliance Structure

Ownership and Control

To qualify, projects must maintain clear and compliant ownership structures. Projects are ineligible if any owner or controlling entity is a restricted foreign entity. These include Specified Foreign Entities (“SFE”), those controlled (>50%) by governments or nationals of China, Russia, Iran, or North Korea, or listed on the Office of Foreign Assets Control’s (“OFAC”) Specially Designated Nationals (“SDN”) List, the Uyghur Forced Labor Prevention Act (“UFLPA”) list, or the Chinese Military Companies list. They also include Foreign- Influenced Entities (“FIE”), which are entities in which an SFE holds ≥25% equity, ≥40% of debt, appoints a covered officer, or exerts effective influence through contractual or payment arrangements.

These restrictions exist to ensure that clean energy incentives are not indirectly supporting entities from jurisdictions or actors identified by the US government as presenting national security or compliance risks. Verifying ownership is now a standard part of project diligence and closing, and sponsors should be prepared to provide formal declarations confirming compliance with these rules.

Compliance must be evaluated holistically, as ownership restrictions, contractual influence, and material assistance operate as independent bases for ineligibility, such that mitigating supply chain exposure alone does not cure noncompliance arising from ownership or control arrangements.

Sourcing and Manufacturing

The OB3 Act strengthens the material assistance framework, which sets minimum sourcing expectations for major components and equipment.

  • Starting in 2026, projects must meet the MACR: minimum sourcing levels from qualifying suppliers.

  • MACR thresholds increase annually through 2030.

  • Projects beginning construction in 2025 or earlier are exempt from these sourcing ratios but must still meet ownership and control restrictions.

Clearly, domestic-content rules are tightening, with the bonus credit for the development of projects using US-made components now requiring stronger considerations for domestically manufactured materials. It is important to distinguish between domestic-content eligibility and compliance with the MACR. Satisfaction of domestic-content thresholds does not, on its own, establish compliance with material assistance requirements. A project may qualify for domestic- content purposes yet still be disqualified if costs attributable to a SFE or FIE exceed applicable limits. As a result, domestic sourcing cannot be treated as a substitute for FEOC compliance.

It should be noted that the shift toward US-based manufacturing of solar, storage, and inverter components was underway well before the OB3 Act’s sourcing thresholds and domestic-content requirements took effect. Several major original equipment manufacturers (“OEMs”) have moved to establish or expand US manufacturing between 2023 and 2025, driven initially by IRA incentives, tariff and trade risks, and supply-chain security goals. The OB3 Act’s foreign entity restrictions, minimum sourcing requirements, and stricter domestic-content bonus rules are therefore expected to accelerate this trend.

Documentation and Auditability

Developers must maintain clear, dated, verifiable records demonstrating how sourcing, manufacturing, contracting, and ownership requirements are met. This includes supplier declarations; procurement records; engineering logs; component traceability evidence; sourcing and manufacturing documentation; and signed contracts and amendments. This documentation is essential for IRS audit readiness and facilitates credit-transfer transactions.

Documentation must also substantiate that no disallowed material assistance has been provided, including cost attribution and supplier ownership transparency where relevant. Reliance on conclusory certifications alone may be insufficient if underlying cost data or upstream ownership information is incomplete. Accordingly, documentation practices increasingly require alignment between procurement records, cost accounting, and ownership disclosures to demonstrate MACR compliance.

Grandfathering and Transition Relief

Projects that began construction before January 1, 2026 are exempt from minimum sourcing thresholds, allowing existing pipelines to continue without disruption. These grandfathered projects must still comply with ownership and control rules but are not subject to the stricter minimum sourcing requirements. New projects, however, must be designed to meet escalating minimum thresholds and domestic-content expectations.

Together, these updates create a unified compliance system centered on transparency, traceability, and record-keeping. As Treasury and the IRS release detailed guidance on verification procedures, developers can expect clearer certification templates and more predictable review processes.

Projects remain eligible when they meet ownership restrictions, avoid contractual control risks, comply with minimum sourcing thresholds and domestic-content thresholds, and maintain thorough documentation. Eligibility risks arise when restricted foreign entities hold influence, when contractual arrangements inadvertently grant operational control or when sourcing ratios fall short after the rules are in effect.

Material Assistance Restrictions

Foreign Entity of Concern (“FEOC”) rules prohibit taxpayers from claiming tax credits if the owner receives “material assistance” from a PFE
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Source: FOSS & Company

Investor Perspective

For sponsors and investors, the restricted foreign entity framework encourages disciplined compliance rather than penalization. Projects with US-manufactured components, allied-sourced equipment, or diversified supply chains already have a structural advantage. The primary focus is on maintaining clear documentation, including contracts, supplier declarations, and project files that confirm the absence of restricted foreign influence. Early alignment with Treasury’s forthcoming verification standards will strengthen eligibility and support efficient credit transfers. In essence, these measures elevate transparency expectations while aiming to provide predictable long-term conditions for diligent investors, though this is offset by continuing uncertainty around forthcoming FEOC guidance, interpretation, and enforcement.

On a broader level, it should be noted that these sourcing obligations intersect with residual tariff considerations from earlier in 2025. While headline volatility has moderated, tariffs continue to influence procurement decisions and overall project costs. Developers are therefore already leveraging domestic sourcing, supply-chain absorption, and onshoring strategies to mitigate these effects, which help reinforce compliance with the OB3 Act’s domestic-content and FEOC requirements.

Updates to Other Credits

Beyond structural safeguards, the OB3 Act refines the clean energy incentive framework by updating credit programs to improve clarity, align incentives with near-term deployment, and maintain fiscal discipline. These revisions adjust timelines and eligibility while preserving overall IRA continuity for investors.

Key Legislative and Compliance Milestones under the OB3 Act and IRS Notice 2025-42

Credit Program Key Policy Adjustments Market Implications
§ 45X – Clean Energy Manufacturing Credit Manufacturing incentives increasingly favor solar, storage, and integrated facilities through 2030, while wind credits sunset after 2027, critical materials get brief support, and critical mineral incentives phase down by 2033 Solar and storage prioritized; wind ends; critical materials get brief, declining support
§ 45Z – Clean Fuel Production Credit Low-carbon fuel credits extended, stricter feedstock rules added, and Sustainable Aviation Fuels (“SAF”) premium unified Extends runway, tightens sourcing, clarifies stacking, improving investment certainty overall
§ 45Q – Carbon Capture & Sequestration (“CCS”) Credit Establishes a unified $85/ton credit across all CO₂ uses (including EOR), maintains higher rates for Direct Air Capture (“DAC”), and adds MLP eligibility from 2026 for CCS, hydrogen storage, geothermal, and nuclear Enhances commercial viability for industrial and EOR projects, broadens capital access via MLPs, and supports midstream CO₂ transport and storage infrastructure
§ 48C – Advanced Manufacturing Credit Ensures unclaimed awards expire and preserves credit value for originally approved factory projects Tightens competition for limited support, emphasizing execution and timely delivery
Fuel Cell & Geothermal ITC Adjustments Automatically qualifies fuel cells for the 30% ITC with optional bonus adders and confirms eligibility for third-party geothermal heat-pump installations Ensures measurable progress and documentation discipline
Continuity Requirement Projects must maintain a continuous program of physical work of significant nature; former “continuous efforts” standard, where administrative actions such as engineering, permitting, or procurement could help maintain eligibility, is eliminated Simplifies qualification for distributed and third-party systems while broadening investor access to smaller clean energy assets
Source: FOSS & Company

ITC/PTC Adders and Effective Credit Rates

Beyond the base Investment Tax Credit (“ITC”) and Production Tax Credit (“PTC”) levels, project economics are increasingly driven by the availability and stackability of statutory adders. Under the OB3 Act framework, qualifying projects can increase the base 30% ITC (or equivalent PTC) through a combination of location- and sourcing-based incentives, most notably the Energy Community adder (+10%) and the Domestic Content adder (+10%). When fully stacked, these adders can lift effective ITC rates to 40–50%, materially improving after-tax returns and financing capacity.

Importantly, adders are not automatic. Each requires independent qualification, documentation, and verification, shifting value creation upstream into siting decisions, procurement strategy, and EPC execution. As a result, adder eligibility has become a core determinant of investability, influencing project selection, capital allocation, and relative competitiveness across technologies and geographies.

Changes to 45X Tax Credit

45X Credits are cut off for wind and phased out for critical minerals but retained for solar, energy storage, and inverters.
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Wind 45X PTC

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Critical Minerals 45X PTC

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Solar 45X PTC

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Energy Storage 45X PTC

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Inverters 45X PTC

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Source: FOSS & Company

Changes to 48E Tax Credit

48E credits for technologies other than wind and solar are largely preserved under the OB3 Act, which ends the IRA’s emissions-based trigger with a fixed statutory phase out beginning after 2033.
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Solar and Wind 48E ITC

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Other Technologies 48E ITC

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Note: Eligibility is determined by the project’s Beginning of Construction (BOC) date. Source: Modo Energy, Arnold & Porter
Key Legislative Changes and Impact
Energy Policy Landscape in the US
Conclusion and Investor Outlook
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