A federal judge struck down an Internal Revenue Service rule that made it harder for wind and solar projects to qualify for federal tax credits, according to court documents, in a setback for the Trump administration’s efforts to curb renewable energy development.
In a ruling issued Saturday, Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia said the IRS failed to adequately explain why it eliminated a long-standing standard used to determine when a clean energy project had begun construction. The decision sends the agency’s guidance back for further consideration.
Court Decision
The rule, issued last August, removed a provision that allowed many developers to qualify for tax credits by spending at least 5% of a project’s total cost before the credits expired. For more than a decade, developers had relied on that standard, known as the “Five Percent Safe Harbor.”
According to the court’s decision, the IRS change was a “significant change” from the agency’s long-standing practice. The judge also wrote that “the natural economic consequence of the Notice is less clean electricity generation capacity and higher electricity prices.”
The lawsuit was filed by a coalition that included the Oregon Environmental Council, Natural Resources Defense Council, Public Citizen, the City and County of San Francisco, Woven Energy and others.
San Francisco City Attorney David Chiu said the ruling puts “an important check on the administration’s actions, which are driving up energy prices for everyday Americans in cities and towns across the country.” reported Reuters.
Benzinga reached out to the IRS for comment.
Growing Demand
The ruling comes as electricity demand continues to rise across the U.S., driven by AI data centers, electrification and grid expansion efforts.
Utilities are expected to spend more than $1.4 trillion on infrastructure through 2030 as they prepare for growing power demand. Industry forecasts have also projected a sharp increase in electricity consumption from data centers over the next several years.
Clean energy advocates argued the IRS rule would have slowed new renewable projects and increased costs for consumers. Grace Henley, a tax attorney at NRDC, said the policy was “making it harder to get the electricity the grid needs now more than ever” while raising costs for utility customers.
The decision also comes amid a broader debate over the future of renewable energy incentives. While the Trump administration has moved to scale back support for some clean energy projects, renewable energy stocks have continued to outperform expectations this year as investors focus on rising electricity demand from AI infrastructure and data centers. Shares of Bloom Energy Corp. (NYSE:BE) , Fluence Energy Inc. (NASDAQ:FLNC) and Energy Vault Holdings Inc. (NYSE:NRGV) have posted strong gains over the past year.
Earlier this year, economist Paul Krugman argued that renewable energy has become increasingly cost-competitive with conventional fuels, even as policy support faces growing scrutiny.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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