Everyone thought Trump would kill the IRA, the Senate says: not so fast

What happened

Yesterday, the Senate Finance Committee released its draft version of the budget reconciliation bill. The new draft walks back some of the harshest measures passed by the House in late May, offering a more flexible framework for clean energy developers. It is, however, more restrictive than the original draft.

The market didn’t cheer: the First Trust NASDAQ Clean Edge Green Energy ETF (QCLN) is currently trading down around 5%, with several solar names under pressure. While the proposal still scales back key IRA incentives, we believe the selloff is overdone given the restored visibility and softer tone relative to the House version.

Impact on our Investment Case

Securing incentives before year-end

For developers and manufacturers serving the utility-scale segment, the Senate version offers renewed breathing room. By reinstating the “start of construction” criterion instead of the House’s rigid “placed in service” deadline, the new framework unlocks safe harboring (a mechanism that lets developers secure credit eligibility by pre-ordering equipment), allowing projects started in 2025 to access full tax credits if completed within four years, meaning through 2029. This shift is likely to spark a rush of procurement and contracting in the second half of 2025 as developers race to lock in eligibility. Compared to the original House draft, the ramp-down is steeper, 60% of credits for 2026 starts, 20% in 2027, and zero beyond, but it avoids the cliff effect created by the House amendment and restores some planning visibility.

Tax credit monetization and financing flexibility

Transferability of credits remains in place, which is critical for developers unable to use tax equity structures. The only constraint is that credits cannot be sold to foreign-influenced entities (defined as 25% direct or 40% aggregate foreign ownership). This should have limited impact on liquidity. At the same time, the updated FEOC (Foreign Entity of Concern) rules shift from blanket bans to cost-ratio thresholds and exempt SEC-listed firms, making compliance more practical while still favoring U.S.-based production. That balance supports both financing flows and domestic competitiveness.

Support for domestic supply chains

The 45X manufacturing credit remains unchanged, extending support for U.S.-based production of solar modules, trackers, and inverters through 2029, with a gradual phase-down until 2032. This ensures continued visibility for domestic manufacturers and helps anchor the solar supply chain in the U.S., a core pillar of our utility-scale exposure.

Room to grow in baseload technologies

Full credit eligibility for hydro, nuclear, and geothermal is extended through 2033, with a gradual step-down to 2036. These technologies, which typically involve longer permitting and construction cycles, gain valuable visibility. While we currently have limited exposure to this segment, the extension offers future investment optionality as the market broadens.

Residential segment left behind

On the negative side, the rooftop solar and residential electrification segments continue to be deprioritized. The short fuse on the 25D consumer credit and the exclusion of leased systems from commercial investment tax credits eligibility will likely hurt residential installers and third-party ownership models. But these segments remain outside our core U.S. exposure.

Our Takeaway

The Senate bill reaffirms our initial thesis: the House proposal was likely the low point. The new language eases developers' concerns, restores financing tools, and reduces the probability of an abrupt demand cliff.

That said, U.S. cleantech stocks are under pressure today as the market reacts to a bill that, while better than the House version, likely did not match investors' hopes.

Nevertheless, the policy outlook is now clearer, the most disruptive provisions are off the table, and developers are likely to accelerate project starts to capture full credits before year-end. Execution and order visibility should improve meaningfully in the coming quarters. We remain confident in our exposure and see the current weakness as a buying opportunity.