Last month, we talked about some of the tax credits that will be vanishing for commercial and residential solar. This month, we have a little more clarity as to what this means, per the U.S. Treasury Department.
Back on July 4 th , Donald Trump signed the “big bill” that greatly impacts the renewable energy sector in this country. He followed up the signing with an executive order to the Department of the Treasury to more clearly define the parameters surrounding the Investment Tax Credit on renewable energy projects with regards to commercial and utility scale projects. The bill put an end to the tax credit on residential systems after December 31, 2025.
Last Friday, the Department of the Treasury released its guidelines. Projects over 1.5 MW were the hardest hit by the new regulations. These regulations will go into effect on September 2, 2025 and are not retroactive.
Here are the main changes for all commercial and utility scale projects:
- Only projects under 1.5 MW can utilize the 5% Safe Harbor rule where purchase of materials can signify the start of a project.
- Projects over the 1.5 MW size must now show the project “under construction” with racking for the solar array in process. Site preparation is no longer sufficient to count as “under construction.”
- Construction on all projects must be underway before July 4, 2026, regardless of size.
- All projects must be completed and placed in service within 4 years.
Yet to be clearly defined is the “foreign entity of concern (FEOC)” provision of the legislation. The idea here is that all renewable energy projects must demonstrate some as-yet undefined level of the use of domestic product rather than imported product. The biggest issue with this ruling is that the U.S. is not currently capable of providing these materials domestically and relies heavily on imports while the global supply chain relocates their manufacturing capital from other countries to the U.S.
As with all legislation these days, any of these restrictions/guidelines could change at any time. For further exploration into this topic, please follow the links below:
- Solar Power World article – New Treasury guidance requires large-scale solar projects to use ‘physical work test’ for ITC safe harbor
- Canary Media article – Trump admin tightens vise on wind and solar with new tax rules
- MSN article – Trump administration places even stricter phase-outs for wind and solar subsidies
We will do our best to send out updates on these legislative changes as the information becomes available. If you have questions regarding how this might impact a project you are wanting to pursue, please give us a call at: 765-480-4138
