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Executive Order Summary: Ending Market-Distorting Subsidies for Unreliable, Foreign-Controlled Energy Sources
Issued: July 7, 2025
Overview
Earlier today, President Trump signed the Executive Order titled Ending Market-Distorting Subsidies for Unreliable, Foreign-Controlled Energy Sources. The order directs the U.S. Department of the Treasury and the Department of the Interior to implement sweeping changes that would restrict or eliminate federal subsidies for renewable energy projects, especially those deemed reliant on Foreign Entities of Concern (FEOCs). The stated aim is to end federal market distortions that “unfairly favor unreliable, foreign-controlled energy sources”—a direct reference to wind and solar.
Key Provisions
Treasury Actions – Within 45 Days
Phase out or restrict access to Sections 45Y and 48E tax credits (production and investment tax credits for clean electricity).
Review and redefine “safe harbor” provisions, including thresholds and requirements for a project to be considered as having “commenced construction.”
Tighten FEOC restrictions, including expanded definitions and enforcement mechanisms.
Department of the Interior Actions – Within 45 Days
Revise permitting and leasing policies for projects on federal land to remove any preferences for non-dispatchable sources.
Reassess land-use plans and environmental policies to prioritize “domestically controlled dispatchable energy,” such as nuclear, gas, and coal.
Potential Actions that the Administration is Considering
Safe Harbor Modifications
Safe harbor rules, as defined under IRS guidance for Sections 45Y and 48E, currently allow developers to qualify for tax credits by either starting physical work of a significant nature or incurring at least 5% of project costs before construction deadlines. The executive order directs Treasury to review and revise these provisions. Here’s how they could do that:
1. Redefine “Commence Construction” to Require Higher Cost Outlay
Current Rule: 5% of total project cost (spending or binding contract) qualifies a project for full ITC/PTC if placed in service within 4 years.
Potential Change: Raise threshold to 51% or more of total project cost, similar to prior proposals by conservative tax reformers.
This would invalidate early-stage projects that use minimal spending to lock in tax credits.
It could particularly harm large utility-scale solar projects that plan in multi-phase financing cycles.
2. Eliminate or Narrow Physical Work Test
·The physical work test (starting site prep, racking installation, etc.) could be limited or invalidated.
Treasury could require substantial vertical construction or delivery of major long-lead components (e.g., inverters, trackers, transformers) before a project is considered under construction.
Modular solar designs that rely on racking or trenching may not qualify without more permanent progress.
3. Shorten the 4-Year Continuity Safe Harbor
IRS rules allow 4 years to place a project in service once it qualifies.
Treasury could reduce this to 2 years or less, putting pressure on permitting, interconnection, and procurement timelines—especially on federal land where delays are common.
Developers who previously banked on multi-year build-outs would lose eligibility mid-project.
4. Require Recertification of “Begin Construction” Status
Treasury could mandate periodic reporting or recertification to prove construction is ongoing, not merely shelved after the safe harbor is claimed.
If a project stalls, its tax credit status could be revoked retroactively—adding financing risk.
Potential FEOC Expansion Measures
The EO directs agencies to ensure no federal subsidies flow to entities with ties to “foreign adversaries.” Treasury and DOE could implement or broaden FEOC (Foreign Entity of Concern) criteria in ways that seriously constrain solar supply chains:
1. Tighten Ownership Thresholds
Currently, FEOC designation relies on 25% ownership or board control from a foreign adversary (e.g., China, Russia).
This could be lowered to 10% ownership or even any material influence, similar to CFIUS rules.
Could impact Spanish, German, or South Korean firms with minority Chinese joint ventures or investors.
2. Expand “Beneficial Ownership” and “Upstream Entity” Rules
Include component suppliers, subcontractors, or raw material sources (e.g., polysilicon, wafers) within FEOC scope—even if the project sponsor is U.S.-based.
If a U.S. solar developer uses modules with wafers made in China, they might lose credit eligibility, regardless of who owns the project.
Treasury could publish a “blacklist” or “FEOC exposure registry” for materials and suppliers.
3. Impose Project-Level FEOC Certification
Developers may be required to certify under penalty of perjury that no FEOC-linked entity was involved in any stage of the project (design, supply, construction, ownership).
Treasury and DOE could create a new audit or enforcement division to monitor compliance, adding a significant burden for developers to report on compliance
4. Retroactive Enforcement
Retroactive enforcement means applying new FEOC-related rules to projects that were:
Previously qualified for tax credits (e.g., ITC/PTC under Section 45 or 48),
Already under construction or safe-harbored,
Or even already placed in service, if Treasury determines noncompliance.
Projects that might be impacted include:
Projects That Safe-Harbored Between 2022–2024
Even if a project met the 5% spend or physical work test, it could be disqualified from tax credits if it has not yet been placed in service and includes FEOC components or contracting relationships.
Projects Under Construction or Permitted But Not Complete
These include utility-scale solar farms under active development that may have:
Deferred procurement (e.g., modules not yet delivered),
Swapped suppliers mid-stream,
Foreign EPC or O&M agreements.
Projects Placed in Service Post–EO (e.g., 2025–2026)
Any project coming online after July 2025 could be audited for FEOC compliance regardless of its original eligibility status
The risk increases if IRS requires all new Form 3468 (ITC claim) submissions to include FEOC attestation.
Projects Involving Re-powering, Storage Additions, or Reconfigurations
Projects that add new equipment, expand capacity, or integrate batteries could trigger a “new placed in service” date, and fall under the new rules even if the original system was grandfathered.
Impacts on Utility-Scale Solar Development
On Private Land
Loss of tax credits for new solar projects unless they meet more stringent safe harbor rules.
Financing uncertainty increases as tax credit qualification becomes riskier and more complex.
Projects using any FEOC-linked components or investors may be disqualified, and limited non-FEOC components will make it more expensive or impossible to comply.
On Federal Land
Permitting bias reversal may delay or cancel projects.
Extended timelines or cancellations for utility-scale projects in BLM and other Department of Interior-managed lands.
Conclusion
The July 7 Executive Order represents a sweeping shift in federal energy policy, targeting utility-scale solar through changes to tax credit eligibility, safe harbor rules, and expanded FEOC restrictions. By redefining key regulatory frameworks, the order favors dispatchable fossil generation at the expense of large-scale renewables. To ensure projects move forward and remain financially viable, companies must take a strategic, risk-managed approach to development and procurement. Advanced Energy Advisors can help navigate these complex policy changes, structure compliant projects, and maximize financial returns in an increasingly uncertain landscape.
Treasury Guidance - July 7th Executive Order
It all begins with an idea.
The Treasury Guidance on Commence Construction from the July 7th Executive was just released. Here’s it is https://aboutblaw.com/bjeL and what’s in it:
1. Safe Harbor (5% Test) Is Mostly Eliminated
Under traditional IRS guidance (e.g., Notice 2013‑29 and successors), there were two main ways to establish “beginning of construction”:
Physical Work Test: Engaging in physical work of a significant nature.
5% Safe Harbor: Spending at least 5% of total project cost on qualifying property.
Now, the new guidance under Notice 2025-42 eliminates the use of the 5% Safe Harbor for most projects (wind and solar facilities) seeking to meet the July 4, 2026 construction commencement deadline. Only the Physical Work Test remains available in most cases.
2. Physical Work Test—Tighter Standards
To establish that construction has begun (before July 5, 2026):
You must perform physical work of a significant nature.
This includes off‑site manufacture (e.g. transformers, racks, inverters) only if:
It’s under a binding written contract, and
Components are not held in inventory.
On‑site work may include:
Foundation excavation, anchor bolts, concrete pouring (wind)
Rack installation, mounting PV panels (solar).
Preliminary activities remain ineligible—things like planning, permitting, studies, site clearing, and so on do not qualify—similar to prior guidance.
3. Continuity Still Required
Once construction has begun under the physical work test, you must maintain a continuous program of construction. A Continuity Safe Harbor applies if the project is placed in service within four calendar years from the year construction began (e.g., if construction begins in 2025, service by end of 2029 meets the safe harbor).
4. Limited Exception for Small Solar Projects
One narrow exception still allows the 5% Safe Harbor for “low output solar facilities”—projects under 1.5 MW. These projects may still use either the Physical Work Test or the Safe Harbor.
5. Effective Date & Scope
This guidance is effective for projects whose construction had not begun on or before September 2, 2025.
If construction began before that date under prior guidance, those rules may still apply.
What This Means in Practice
Projects relying on the 5% test: Those planning to satisfy beginning-of-construction with contracts or deposits totaling ≥5% must pivot. For large solar or wind installations, the Safe Harbor route is mostly closed now.
Physical Work only: You must begin qualifying physical work of significant nature—like excavation or component manufacture—under binding contracts, and avoid having components held in inventory.
Timing is critical: Projects that began construction (and are properly documented) before September 2, 2025 may still rely on earlier, more flexible guidance. Those that haven’t must strictly adhere to the new rules to avoid missing credit deadlines (especially the July 4, 2026 cut‑off).
In Short…
The updated “commence construction” guidance drastically restricts the use of the 5% Safe Harbor for wind and solar facilities. Now, the only reliable path for most projects starting construction after early September 2025 is through physical work of a significant nature, which must be clearly documented and meet stricter criteria. The continuity requirement remains, but the means to establish a start date are now narrower.