On August 15, the Dept. of the Treasury released new guidance related to safe harboring solar projects under the ITC in response to a July executive order from President Trump. Safe harboring allows companies to demonstrate a good-faith effort at starting a solar project to secure the applicable tax credits in place that year.
Treasury safe harbor changes starting 9/2/2025
- Projects >1.5 MW must use Physical Work Test
- Physical Work Test is narrowed and does not include “preliminary activities”
- Projects using Physical Work Test must maintain “continuous program of construction”
- Projects <1.5 MW can still use Five Percent Safe Harbor
- All projects still have four years to be placed in service under Continuity Safe Harbor
The new guidance requires projects larger than 1.5 MW to use the Physical Work Test to safe harbor the ITC — the method proving significant physical labor has begun on a site. Large projects can no longer use the Five Percent Safe Harbor — the method proving significant costs have been incurred for the project. The guidance also narrows the Physical Work Test to “the installation of racks or other structures to affix photovoltaic (PV) panels, collectors or solar cells to a site.” It does not include “preliminary activities” like grading the land, conducting studies or clearing a site. The guidance also requires projects using the Physical Work Test to “maintain a continuous program of construction,” where the “physical work performed is of a significant nature.”
The guidance did not raise the percentage required for the Five Percent Safe Harbor, which, as the name implies, remains at 5%. It also did not change the amount of time developers have to place a safe-harbored project in service, whether it’s using the Physical Work Test or Five Percent Safe Harbor. That Continuity Safe Harbor time period is still set at four years.
The new rules take effect on September 2, 2025, and are not retroactive.
Solar industry groups spoke out against the changes, but Roth Capital Partners said the guidance was “substantially better than expected.”
“The Treasury Department’s new guidance to further restrict energy tax credits is part of an unprecedented side deal the administration made with anti-clean energy ideologues to undermine Congress and further harm America’s solar industry,” said Abigail Ross Hopper, president and CEO of the SEIA. “This is a blatant rejection of what Congress passed in HR 1, and it threatens thousands of small businesses across the country that are the backbone of our clean energy economy.”