One thing that we can all agree on about the so-called “One Big Beautiful Bill” is its size. It’s massive. And amid the tax cuts, medicaid cuts, and broader impacts on the renewables industry are key provisions directly impacting distributed energy:

Negative: new cliff dates for the solar ITC
Negative: new foreign entity of concern (FEOC) restrictions
No change: battery ITC retained
No change: ITC adders retained
No change: Transferability and direct pay retained
Positive: 100% bonus depreciation enacted permanently
TBD: executive order overhang on redefining “start of construction” for solar ITCs

Our expectation is that these changes will accelerate some activities for solar projects and slow others:

Accelerated development, deal making, and site work to lock in construction start dates
Repricing everything that doesn’t meet the deadline, with some projects dropping off
Steady growth from there driven by rising rising utility rates

Solar ITC cliff dates
While it could have been worse, the end of the solar investment tax credit is still the biggest negative for our industry here. OBBB requires that a project start construction prior to 7/3/26 to lock in four years during which it can be placed in service. Otherwise the project has to be placed in service by 12/31/27. This is a drop dead date, similar to NEM 2.0 in California, which will not be easy to manage for any projects looking to hit COD within eight months or less from 12/31/27.

Beginning of construction
An executive order following the passage of the bill also raised questions about what exactly will be required for the start of construction. In the past, this has been met by spending 5% of the budget, e.g. on equipment, or starting physical construction on site. In mid August we expect to know if there will be substantial changes to these requirements or more modest modifications.

FEOC
The bill also introduced complex rules about a foreign entity of concern (FEOC) that make projects owned, controlled by, or in receipt of “material assistance” from a prohibited foreign entity (PFE) ineligible for the tax credits. China is the focus here, of course. And material assistance is defined as different but steadily more restrictive percentages of costs for facilities, technologies, components, inverters, batteries, and critical minerals. Expect ample work for accounting firms who diligence these percentages to verify eligibility, similar to what we’ve seen for the domestic content adder. And don’t expect this to happen overnight, we may see a major development slow down as soon as 1/1/26.

Percentage of non-FEOC material costs divided by total material costs, per Sidley.

ITC adders
The Domestic Content and Energy Community adders remain intact, though subject to the same cliff dates as the ITC generally. The Domestic Content threshold was clarified for projects based on project start dates:

40% before 6/16/25
45% between 6/16/25 and 1/1/26
50% in 2026
55% after 2026

Transferability and direct pay
OBB also retains tax credit transferability for businesses and the direct-pay option for nonprofits and governments. There is a new restriction prohibiting transfers to FEOCs, but most transfers and direct pay approaches should not be affected.

BESS
Battery storage projects will still be eligible for the ITC through 2033 and are not subject to the new cliff dates for solar projects. This is probably the biggest positive for our industry in the whole bill. The challenge here will be those increasing cost ratio thresholds for “material assistance” from FEOCs, with the threshold for battery components increasing from 60% in 2026 to 85% in 2030 and the threshold for critical minerals increasing from 0% in 2026 to 50% in 2033.

Bonus depreciation
One benefit from the bill is that 100% bonus depreciation was permanently reinstated. While not all solar investors can fully take advantage of that, some certainly can and will. This could help soften the blow of what’s likely to become a tighter market from buyers.

Conductor’s take
This bill is of course a big setback for the DG solar market following the momentum that had been created by the Inflation Reduction Act. It is also clearly not as bad as it could have been in the context of harsher proposals that received serious consideration in both the House and the Senate. Retaining the ITC for battery storage and the provisions for adders, transferability, and direct pay are all significant wins.

The biggest challenge going forward will likely be the FEOC restrictions, given China’s historic dominance in key equipment supply chains. Manufacturers are already adjusting, but it will take time.

We’re expecting accelerated development, deal making, and site work over the next year to lock in safe harbor for projects’ start of construction. Everything else will need to get repriced. Many projects will still be viable, especially as rates for electricity from the grid continue their steep climb.

Batteries with and without PV will continue to grow and improve with scale. But their value proposition in the DG market will continue to be driven by program and rate structures more than the merchant arbitrage opportunities driving their growth at the utility scale.

For more detailed analysis of the bill, see Sidley’s write up here.

OBBB and the DG market

Solar project M&A - Chaos on the buy side