Breed Range Logistics
Solar Projects 1 MW and larger that are eligible for the investment tax credit (ITC) or production tax (PTC) and associated bonus credits for inflation reduction are not off one day to the other. Timelines for securing financing, completing design and permit and installing a project are a size of years, not days. Financiers who want to invest in IRA -Zonne projects need the certainty that the tax credits will occur and will yield a solid return on the investment. The determination “Safe Harbor” makes this possible.
Safe Harboring enables companies to show good faith to start a solar project to exclude the applicable tax credits that year. As soon as they secure the credits, they have four years to complete the project – Known as the “Continuity Safe Harbor.”
For the ITC or PTC, companies can protect the credits in two ways – either by physically starting the project or incorporating 5% of the materials costs for the project. The previous method, often called the “physical work test”, applies to work on site or manufacture of adapted equipment for the Offsite project. Keith Martin, partner at law firm Norton Rose Fulbright, said that utility contractors usually have to start working on the most important power transformer of the site to be eligible.
For the 5% test, companies have to do more than just pay for equipment – those products must be delivered to them and therefore installed or stored, Martin said.
Safe Harboring looks different for residential solar contractors than for contractors on utilities. Residential contractors can claim these bonus credits for third -party ownership systems and will usually stock inverters or solar panels to secure the safe haven.
“They don’t know when they are in stock where the equipment will be used, but they use sufficiently stored equipment to get above 5%,” said Martin. “It has been a bit more careful for utility scale [contractors] To at least have an idea where the equipment will be used when you buy it. “
The national residential installers who are most likely to benefit from the domestic content credits of the IRA must think after considerations before they decide which products to opt for Safe-Harbor. First, they must ensure that they have warehouse space to physically save those products. They must then choose a technology that remains informed of the four years that they have to install the products.
Many of the most important manufacturers with activities in the United States have announced Safe Harbor “partnerships” with national installers and financiers. Dissolved announced such a partnership with Sunrun, and Criticize Together with IGS Solar.
Raghu Belur, Chief Product Officer at Enphase, believes that micro -rooters are a good safe port choice for their small and external updates. While the progress of the solar panel is quickly taking place, micro -moiners work on longer technological timelines.
“Because we are fully defined on software, there is very little risk of any technological aging,” Belur said.
Whether companies choose to start physical work or pay 5% of the material costs, they must continue to work on the applicable project and finish it within four years.
“Both methods require the developer to make continuous progress in the construction of the project, and in the four-year continuity Safe Harbor requirement, to ensure that it was built in a reasonable window after the construction starts,” said Lesley Hunter, SVP of policy and involvement in the American Council on Renewable Energy (ACORE).
Safe Harbor Outlook in 2025
Contractors hurried to lock the safe haven by the end of 2024 to take advantage of the current ITC bonus credits – including the 10% domestic content credit and energy community. The required percentages of the domestic content that are needed to claim that the credit is set to rise by 5% each year of the initial 40% until it applies 55%, making it more difficult to protect each year. If owners are looking for the bonus credit of the energy community, a project can fall in and out of that indication over the years, depending on the changes in the unemployment rate and fossil fuel -related tax revenues used to achieve the designation.
Companies also wanted to close the current credits before possible IRA changes under the new Trump administration, which have already been questioned after a series of executive orders.
“The reason to start construction last year is that it is difficult to see how a new congress can disrupt an option in 2025 that people had under the tax code of 2024 to claim tax credits,” said Martin. “But now that we are in 2025, everyone is under these new tax code sections, and the Republican congress will probably speed up the view of these tax credits under the new sections, or there has been talk about reducing the amount but allowing a higher Tax credit if there is sufficient domestic content. “
Contractors who were not ready to start construction last year, now racing to do this before the early spring, when the House of Representatives Committee for Ways and Resources will probably start again with the Restoring of the IRA.
“Everyone who starts with construction before the tax assessment starts to move is historically grandfather of change, as long as the project is completed within a certain period. So there are people who still hurry to start construction at the beginning of this year, “said Martin.