Clean energy developers are having a harder time securing financing for projects as they wait for IRS rules on new restrictions for the lucrative energy tax credits.
The 2025 tax-and-spending law created foreign entity of concern restrictions on the energy tax credits to limit dependence on certain countries, such as China and Russia. The IRS in February put out some guidance on the supply chain restrictions but not on the foreign limits to debt financing and technology licensing. A Treasury official said June 4 that more guidance will come out before the end of the year, ideally in the third quarter.
The ambiguities in the law are making it harder for developers to sell their tax credits, a form of financing created by the 2022 tax-and-climate law to encourage more renewable energy.
Many tax insurers also are unwilling to take on the risk without more details on restrictions. Tax insurance has become nonnegotiable in many deals as buyers look to protect against losses if the IRS challenges the credit. Over 60% of clean electricity investment tax credits had insurance in the first half of 2025, according to Crux, a tax credit transfer platform.
Corporations unfamiliar with the renewable energy industry typically require insurance because of their low-risk appetite. And banks—the biggest financers in the energy credit market—typically will only buy investor-grade tax credits or those that are insured.
“We have tax insurers basically saying they don’t feel comfortable issuing broad insurance policies without rules,” said Jennifer Bernardini, a managing director in PwC’s Federal Tax Services practice, adding that that is holding up a lot.
Preference for Legacy Credits
Foreign influence restrictions took effect this year for projects qualifying for the clean energy investment and production tax credits—also known as tech-neutral credits.
Tax credit buyers prefer to shop for projects under a previous tax credit regime because they’re not subject to the foreign influence restrictions. Developers had to start construction before the end of 2024 to qualify for the legacy clean energy tax credits.
“We’ve seen a premium for the legacy credits over the tech-neutral credits,” said David Burton, a Norton Rose Fulbright partner focused on tax deals in the energy industry.
Legacy credits likely will be available until at least 2028, because of a rule that allows for a four-year construction period if companies meet certain requirements.
The hesitation of the tax insurance market to cover the restrictions is typical of insurers, said James Chenoweth, managing director of Alliant Insurance Services.
“Lawyers need to be able to tell the client that, ‘Hey, if we were going to court, you should probably win on these facts, and we’re more likely than not comfortable with that,’” Chenoweth said. “The existing guidance is insufficient for a lot of projects in that regard.”
The tax insurance market has tightened in the past few years, said Casey August, a Morgan, Lewis & Bockius partner specializing in tax and energy. Part of that may be because of the Trump administration’s aversion to solar and wind projects.
“The market is changing on a daily basis,” August said of the due diligence needed for clean energy project financing.
Shouldering the Risk
Still, some deals for tax credits subject to foreign entity restrictions are happening.
A buyer might feel comfortable with a deal if a project developer has a large balance sheet. For example, tax credit sellers can offer investment-grade and credit-rated indemnities in which they take on the financial risk if the IRS challenges the credits to ease buyers into a deal.
“Tax equity is not going to carry the risk,” Chenoweth said. “But if you are a, let’s say a major developer and you’re OK with your supply chain enough and you’re like, ‘Hey if this gets audited, I’ll go fight the IRS with or without insurance,’ then you could still finance it and get it done.”
Sellers also are finding other smaller sources of financing that are willing to take the risk instead, though there are fewer options.
“We can’t just sit around and wait forever, so the projects the banks are saying no to, there are smaller players that are getting cobbled together and are doing deals,” said Shariff Barakat, partner at Akin Gump Strauss Hauer & Feld LLP. There are more projects that need investors than there are investors since banks are sitting on the sidelines, he said.
There have been some instances where tax insurance will cover the supply chain foreign entity of concern restrictions because of established IRS guidance. But investors are holding out for more details from the agency as newer projects enter the tax credit transfer market.
“Once there is certainty there is going to be a flood of activity,” Barakat said.