A federal court has set aside a Trump-era policy that narrowed eligibility for key tax incentives used by wind and solar developers, handing the renewable energy sector a significant courtroom victory.
In a ruling issued over the weekend, a judge in Washington, D.C., found that the Internal Revenue Service failed to adequately justify a major change to long-standing guidance governing when clean energy projects are considered to have begun construction.
The disputed policy, introduced by the Treasury Department and the IRS last year, altered the framework developers relied on to secure federal tax credits for renewable energy investments. The change removed a widely used pathway that allowed companies to preserve eligibility for incentives by spending at least five percent of a project’s total cost before a credit deadline expired.
Under existing federal incentives, renewable energy projects must either commence construction before July 4 this year or be operational by the end of 2027 to qualify for a base tax credit worth 30 percent of project costs. Additional incentives can increase that benefit even further.
For roughly a decade, developers had two primary methods to demonstrate that construction had begun: carrying out substantial physical work on a continuous basis or meeting the five-percent expenditure threshold. The IRS policy introduced last August largely eliminated the spending-based option for all but the smallest projects, creating uncertainty across the industry.
The court concluded that the agency had not provided a sufficient explanation for abandoning the long-established interpretation. As a result, the guidance has been vacated and returned to the IRS for further review.
The challenge was brought by a coalition that included environmental organizations, consumer advocates, the City of San Francisco, and clean-energy consulting firm Woven Energy. The plaintiffs argued that the revised policy threatened to delay or derail renewable projects and could ultimately increase electricity costs for consumers.
San Francisco City Attorney David Chiu welcomed the decision, describing it as an important check on government actions that, in his view, were undermining investment certainty in the clean-energy market. He said predictable rules are essential for developers planning projects that expand power generation and support lower-emission energy sources.
The ruling marks another setback for President Donald Trump’s efforts to curb the growth of renewable energy technologies. Throughout his administration, Trump has repeatedly criticized wind and solar power, arguing that the industries receive excessive government support and cannot reliably meet the country’s energy needs.
The IRS declined to comment on the litigation while the matter remains before the courts.
