AES · 10-Q · 2026Q3 · Full report

U.S. Tax Law Changes

AES CORP · 2026-11-03 · Importance 46 · Surprise 42 · In source text

The U.S. enacted H.R. 1, the 2025 Act, on July 4, 2025, revising renewable-energy tax credits and taxation of certain foreign earnings, with potential material effects on AES’s future effective tax rate. Wind and solar projects beginning construction after the first 12 months following enactment generally must be placed in service by 2027 to qualify, while energy storage projects can receive full credits if construction begins by 2033; the Act also restricts credits for certain projects involving prohibited foreign entities. Treasury issued revised start-of-construction guidance on August 15, 2025, and comprehensive guidance on foreign-entity restrictions remained forthcoming; AES expects most of its renewables backlog to qualify but says the Act and related federal actions may materially affect results. Effective January 1, 2026, the Act’s NCTI and foreign-tax-credit provisions subject a portion of foreign earnings to current U.S. taxation, while its interest-deduction amendment applies retroactively from January 1, 2025 and is expected to increase current permitted deductions.

Key facts

• The 2025 Act amended wind and solar ITC and PTC phaseouts: projects beginning construction within 12 months of enactment remain eligible for 100% credit without the 2027 placed-in-service deadline if placed in service within four calendar years after the construction-start year; projects starting later must be in service by 2027. source
• Beginning January 1, 2026, the 2025 Act’s NCTI rules subject a portion of AES’s foreign earnings to current U.S. taxation, potentially materially; the rules provide a 14% effective tax rate on captured foreign income through a 40% deduction, but companies with U.S. net operating losses or insufficient taxable income may not benefit or use foreign tax credits. source
• The 2025 Act restricts ITC/PTC eligibility for renewables and storage projects starting construction after December 31, 2025 that receive material assistance from a prohibited foreign entity, limiting the share of project costs sourced from products mined, produced, or manufactured in China. source
• The 2025 Act, enacted July 4, 2025, significantly revised U.S. renewable energy tax credits and taxation of certain foreign earnings, potentially affecting AES’s future effective tax rate materially. source
• Wind and solar projects that began construction by the end of 2024 are not impacted by the 2025 Act; energy storage projects can receive the full ITC or PTC if they begin construction by 2033. source
• AES expects the vast majority of its renewables project backlog to continue to qualify for ITC and PTC, although Treasury action may impose additional qualification burdens. source
• The 2025 Act’s effects, Treasury and Interior actions, or future actions modifying or repealing ITCs and PTCs or adversely affecting renewable projects may materially affect AES’s results of operations. source
• The 2025 Act retroactively amended the net-interest-deduction limitation beginning January 1, 2025, limiting deductions to interest income plus 30% of tax-basis EBITDA rather than 30% of tax-basis EBIT. source

Impact estimates