The U.S. solar and renewable energy sectors face a complex regulatory landscape. Nearly four years after the passage of landmark federal clean energy incentives in the Inflation Reduction Act, developers are still dealing with gray areas. The most pressing issue comes from Foreign Entity of Concern restrictions, which are slowing down project finance as stakeholders wait for final guidance on ownership and control.
Speaking on a recent episode of the Norton Rose Fulbright Currents project finance podcast, Dorian Hunt, partner and co-leader of renewable energy tax services at CohnReznick, sat down with host Todd Alexander to discuss how this lack of clarity alters developer strategies.
While the IRS and Treasury provided supply chain clarity with Notice 2026-15, establishing a safe harbor for raw materials, Hunt noted that the market remains out in the open regarding ownership and effective control.
According to Hunt, evaluating the control prong requires an “inclusive examination of your arrangements across the entire project life cycle to understand whether it’s going to limit the availability of these incentives.”
While the lack of clarity has not halted development entirely because grid power demands are so high, it has added major friction to project financing.
A bottleneck has emerged within the tax credit insurance sector. Financial carriers want to issue full-wrap policies to cover downside tax risks, but many now refuse to bind coverage for foreign entity limitations until finalized guidance comes out. Because securing tax credit insurance is frequently a required step to close project financing, this standstill slows down deals.
The ongoing ambiguity also drives a reassessment of credit selection. The risk of an open-ended credit recapture under the Investment Tax Credit (ITC), where a retroactive compliance violation can strip away a massive upfront credit, discourages developers from electing that option.
For technologies where the economics allow, developers are taking a second look at the Production Tax Credit (PTC). While the PTC requires waiting on a 10-year delivery schedule, it insulates a project from a single point upfront recapture.
Beyond geopolitical risks, the internal mechanics of related party tax equity transfers face heightened scrutiny. A standard feature of ITC transactions involves selling an asset from a development company silo to an operating company to achieve a legitimate step up in basis to fair market value. Because these are related party transactions, establishing a clear narrative of economic substance is essential.
To mitigate audit risks, Hunt emphasizes that the justification and business purpose for the transaction must go “above and beyond the obvious desire to have more tax incentives in the mix.” In practice, this means structuring capitalization policies that avoid circular cash flows.
Hunt warned developers to avoid setups where “money is going left pocket, right pocket, same day, same guy.” Instead, developers can utilize tools like market rate shareholder loans or notes payable with bona fide repayment terms to ensure the development company operates as a standalone business.
The defensive positioning is reinforced by broader corporate tax litigation. Advisors are keeping a close eye on adjacent, non-renewable tax cases, such as the recent ruling in Liberty Global, which could provide federal taxing authorities with a new platform to challenge historical related party structures and circular cash mechanics across the renewable sector.
The broader transferability market under Code Section 6418 remains healthy, though pricing has softened from its initial peaks. Analysts view this as a natural stabilization of a maturing market rather than a decline, as initial anxieties that transferability rules might be repealed have dissipated. Furthermore, corporate tax appetites have been slightly reduced by robust research and development expensing provisions and expanded bonus depreciation opportunities elsewhere in the market, normalizing supply and demand.
Simultaneously, developer appetite is tilting toward technologies that survived recent legislative cleanups unscathed. Transactions are accelerating around Section 45Z sustainable fuels, 45Q carbon capture, and advanced manufacturing under 45X.
Ultimately, the consensus across the project finance landscape is one of cautious momentum. The industry has proven its capacity to deploy capital under volatile conditions, but true transactional acceleration will remain on hold until the Treasury establishes the definitive rules of the game.
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