OBBBA: A balancing act of incentives and constraints - by Molly Dee-Ramasamy and Zhen Ren

 

 

On the surface, the One Big Beautiful Bill Act (OBBBA) looks like a win for clean energy investments. It promises bold incentives — like permanent 100% bonus depreciation — that seem tailor-made to help decarbonization projects “pencil” from day one. Headlines have focused heavily on what OBBBA preserved or expanded, including support for geothermal, energy storage, and fuel cells.

But take a closer look, and the picture becomes far more complicated.

OBBBA repeals or shortens many of the Inflation Reduction Act’s (IRA) most relied-upon provisions — especially those supporting solar, wind, residential upgrades, and commercial building efficiency. For every provision that appears helpful, there’s a corresponding constraint that makes it harder to realize the benefit. The risk of depreciation recapture, the complexity of Foreign Entities of Concern (FEOC) compliance, and tight, sometimes conflicting, timelines for energy-related tax credits all introduce friction.

In practice, OBBBA is less a windfall and more a tradeoff —one that demands careful navigation to avoid costly missteps.

What Changed from the IRA, and Why It’s Tricky

Several of the most visible provisions of the OBBBA – most notably the restoration of 100% bonus depreciation – present clear advantages. For building owners, it is reasonable to expect that certain elements of the OBBBA could be quite helpful in getting projects done; however, it’s important to recognize that these positive changes largely benefit a very narrow subset of projects. Additionally, with the expiration of widely used incentives such as 179D, developers and property owners are now facing increased timing risks and greater financial uncertainty.

View the breakdown in the chart of what changed for the commercial real estate sector and our take on how “helpful” these changes are in practicality.

You can see visually that these changes and new requirements trend overall toward “not helpful”. Let’s see what this looks like for real projects that a commercial building might be interested in implementing:

Heat Pump Retrofits: A Case Study in Complexity

Talk to most engineers or sustainability professionals about how to decarbonize a building, and they’ll tell you heat pumps are a critical piece of the puzzle. In dense, urban cities like NYC, air- and water-source heat pumps are often the most viable options due to space and land constraints.

While heat pump technology has been around for decades, large-scale systems are still relatively new to many building owners — and they’re perceived as risky. Decision-making is slow, and that’s now a problem because the primary tax benefit for installing air or water-source heat pumps comes from Section 179D, which sunsets in 2026. After that, only geothermal heat pumps and heat pumps with storage capacity will qualify for remaining credits thanks to the OBBBA.

Even if a building can accommodate a geothermal system, the OBBBA timeline and material requirements are tough:

• Equipment must be acquired after January 19, 2025;

• Placed in service within four years;

• Must be FEOC-free (free of components from Foreign Entities of Concern);

Meeting all three criteria is easier said than done.

FEOC-Free Equipment: A Short List

Sourcing compliant equipment is a major challenge. The term “compliant” itself remains loosely defined under current IRS and DOE guidance related to OBBBA.

According to this guidance, a company is not FEOC-compliant if it receives technical assistance, financial support, or supply chain services from a Foreign Entity of Concern — even if the final product is manufactured outside those countries. This means manufacturers could be disqualified if:

• Their compressors or control boards are licensed from Chinese firms

• They use engineering or software platforms based in FEOC countries

• Their supply chains include raw materials from FEOC entities, regardless of final assembly location

As a result, the pool of eligible manufacturers has narrowed significantly. Currently, only 8–10 companies worldwide are considered fully compliant, including:

• Daikin Applied (Japan/USA)

• Trane Technologies (USA)

• Carrier Global (USA/EU)

• Bosch Thermotechnology, Vaillant, NIBE, Stiebel Eltron (EU)

• Clade Engineering (UK).

Most other brands — even widely used ones — rely on Chinese-made compressors, inverters, or control boards, making them non-compliant under OBBBA. Additionally, all manufacturers must provide country-of-origin documentation and FEOC attestation letters for each major component. These requirements further complicate procurement and make it difficult to begin construction by mid-2026.

Solar PV + Battery Deployments: A Simpler Path?

So, OBBBA ultimately makes it more difficult to implement in buildings—what about solar and battery systems?

Solar is a well-established technology: it’s cost-effective, widely understood, and relatively straightforward to deploy on commercial buildings. Battery storage, meanwhile, is gaining traction as a critical tool for grid support and building resilience. At first glance, it seems like a win that the OBBBA maintains Investment Tax Credit (ITC) support for both technologies.

But the reality is more nuanced.

While the credits technically remain in place, the eligibility rules have been expanded and are now governed by different — and sometimes confusing — timelines:

• Solar: Eligible if construction begins on or before July 4, 2026, and the system is placed in service within four years. If you miss that start date, you must complete installation by December 31, 2027 to qualify.

• Battery: Eligible with no start date requirement, but must still be placed in service within four years.

These timing constraints introduce complexity and risk, especially for projects with longer development cycles or uncertain construction schedules. What looks simple on paper may require careful planning to avoid missing critical deadlines.

Depreciation Recapture: The Hidden Cost**

At this point, a building owner might reasonably think, “Well, if ITC credits are off the table, at least I’ve got 100% bonus depreciation.” But even that silver lining comes with a catch: recapture.

If the system is sold or taken out of service before the end of its recovery period — typically between 5 to 15 years — the IRS claws back the depreciation as ordinary income, taxed at rates up to 37%. This is especially problematic for owners with short hold periods (3–7 years), where the upfront tax benefit is later offset by a substantial tax bill.

And when you run the numbers, the comparison between the original IRA depreciation schedule and the year-one 100% bonus isn’t as favorable as it seems. After accounting for recapture, the net savings are often marginal. 

So… What does All this Really Mean?

Here’s the bottom line: Yes, some provisions of OBBBA are genuinely helpful under the right circumstances, but overall, the changes make it harder for energy projects to move forward.

OBBBA’s 100% bonus depreciation and retained energy tax credits look great on paper — but the compliance burden is so high that many owners simply won’t be able to take advantage of them.

Molly Dee-Ramasamy, PE, CEA, is the director of the Deep Carbon Reduction Group and Zhen Ren, PMP, CEM, CMVP, LEED AP O+M | product manager with the Deep Carbon Reduction Group at Jaros, Baum & Bolles Consulting Engineers, LLP, in Manhattan, N.Y.