Tag: tax credits

Where Do ITC and PTC Solar Credits Stand in 2026?

Posted on by Gino Geruntino

When President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) last July, sweeping changes blasted the renewable energy industry. 

For an industry seemingly finding its stride, the OBBBA was a baseball bat to the knees. Nearly every sector was impacted, including solar, and developers, manufacturers, and consumers alike suffered. 

And while it’s true that misery enjoys company, the changes leave developers and consumers scratching their heads. Unfortunately, the solar industry must now find ways to expand with less federal help. 

Tax Credits Fading Out 

At a time when AI growth is causing electricity use to soar, the solar industry lost part of its appeal. 

The OBBBA brought drastic changes to tax credits and incentives for investing in solar projects. Most notably, it shortened the sunset dates for critical ITC and PTC credits originally extended by the Biden administration. 

But where does the industry stand in 2026, and what can we do to preserve years of positive momentum? 

Residential Solar 

If any part of the solar industry took the brunt of the changes, it was the residential solar sector. 

Under the Inflation Reduction Act, homeowners were eligible for a 30% federal tax credit applied to the cost of their solar installations and battery storage projects. However, to receive the credit for a battery project, applicants had to meet several requirements, including: 

  • 3 kWh installed with a new or existing solar project 
  • Exclusive solar charging for the first year 

Most notably, the Residential Clean Energy Credit (Section 25D) ended in December 2025.  

Once the OBBBA took effect, homeowners scrambled to get solar projects installed and operating by the December 31 deadline. Those who beat the buzzer and got their projects finished weren’t fully in the clear, however. To fully qualify, homeowners had to own the system AND have an income tax liability for the tax year. 

How Did the Industry React? 

Homeowners were left scrambling when news broke that the residential ITC cliff was approaching in a matter of months. 

With a short deadline, homeowners rushed to get solar projects online to take advantage of the ITC. Projects that missed the deadline weren’t as lucky, missing out on the 30% federal tax credit. 

Despite losing a massive residential solar incentive, there is still another way to qualify for savings. If they choose to, residents can invest in solar through commercial companies. In this scenario, businesses can claim a 48E tax credit through leases and power purchase agreements. 

The 48E tax credit does two things that help residential solar development. First, companies get to take advantage of federal tax incentives to encourage development. Secondly, businesses receiving the credits can pass along those savings to residents as lower-cost power. 

Where Does Residential Solar Stand Today? 

Without federal tax benefits, today’s homeowners are in a worse position than they were a few short months ago. 

Luckily, residents have a few other cost-saving avenues to make going solar more affordable. A growing number of states are stepping up to the plate, instituting trust funds, assistance programs, and other incentives.  

For those interested in going solar, the N.C. Clean Energy Technology Center’s DSIRE database outlines available state and municipal solar incentive programs. 

Commercial and Utility-Scale Solar 

Commercial and utility-scale solar didn’t suffer as much as residential, but developers are still licking their wounds. 

The problem here isn’t the elimination of crucial tax credits, but rather the timing of them. Under the Inflation Reduction Act, ITC and PTC credits were in place at current levels until 2032. Afterwards, there was a gradual multi-year sunset period. 

This is no longer the case with the OBBBA. Under the new law, Section 48E ITCs now face a cliff at the end of 2027. The timeline is drastically shorter, forcing companies to move projects along much more quickly and with fewer protections. 

For a wind or solar energy project to qualify for a 48E or 45Y credit, construction must begin by July 4, 2026. But the July 4 cutoff is more than a convenient deadline. Starting before then allows developers to qualify for a four-year safe harbor, giving them more time for the job. 

But missing the start date cutoff has dire consequences. Any projects started after July 4, 2026, must be fully operational by December 31, 2027. For large-scale utility projects, the timeline might be nearly impossible. Smaller community installations, however, could meet the December 2027 deadline with an efficient process. 

Are Safe Harbors Still Safe? 

Although developers and EPCs still have access to safe harbor coverage, they still pose issues. 

For example, the IRS recently changed the “Five Percent Safe Harbor” rule following Trump’s Executive Order 14315. Also known as “Ending Market Distorting Subsidies for Unreliable, Foreign-Controlled Energy Sources,” the E.O. says, in part: 

“This includes issuing new and revised guidance as the Secretary of the Treasury deems appropriate and consistent with applicable law to ensure that policies concerning the “beginning of construction” are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.” 

So, what does this jargon mean, and what does the government now consider “appropriate and consistent?” 

In short, solar developers must use physical work tests exclusively to prove work of a “significant nature.” Thankfully, the thresholds apply to both on-site and off-site processes, including manufacturing parts and system installation. However, preliminary work like planning, research, financing, testing, permitting, and clearing land is NOT included. 

Although the IRS changed the rules, low-output solar facilities (less than 1.5 MW) still fall under the Five Percent Safe Harbor rules. 

Batteries Avoid the Brunt of Rule Changes 

In a surprising twist, battery storage is largely safe from new rules instituted by the OBBBA. 

Battery storage projects keep their tax credits through 2033, but installations must comply with Foreign Entities of Concern rules. The rub here is that many of the companies and businesses in the battery storage supply chain fall within FEOC. 

China is one of several countries deemed a “covered nation” in the FEOC, which also includes North Korea, Russia, and Iran. Though every case is different, companies involved with these four countries typically don’t comply with the rules. The result is an industry forced to find alternative solutions to meet domestic and friendly-nation production. 

Domestic battery manufacturing is still a nascent industry in the U.S., so short-term availability and sourcing may struggle. The good news is that as near-shore and onshore production picks up steam, we could see long-term availability. 

New Year, New Taxes 

Finally, 2026 also brings a few other new tax surprises, including Prohibited Foreign Entity (PFE) rules. 

Introduced in the OBBBA, the PFE rules impact the 48E ITC, 45Y PTC, and 45X manufacturing tax credits, among others. Basically, the rules prevent Specified Foreign Entities (SFE) and Foreign-Influenced Entities (FIE) from claiming tax credits. Similar to the FEOC rules, SFEs include China, Russia, North Korea, and Iran. 

Businesses should also be careful around the new Applicable Payment Rule, which states that if an SFE is paid in a way that benefits them and grants control over a facility, the taxpayer can’t claim credits. The reason this rule is important is that it’s effective within the first 10 years of a site entering service. 

Operators must be aware of every company they work with, because one mistake could lead to trouble. For example, if an operator makes site maintenance payments to an SFE-associated company, the IRS can potentially claw back 100% of the claimed ITC. 

Finally, there are new Material Assistance Cost Ratio Rules, which restrict the percentage of products sourced from PFEs for projects. Though similar to the domestic content rules we’re already familiar with, there is a key difference between the two. Unlike domestic content thresholds, Material Assistance rules cap total PFE components at 40%; otherwise, companies lose the credit. 

Additionally, the percentage of non-PFE content increases annually, making the benchmark harder to reach. 

Solar’s Fight Continues 

The One Big Beautiful Bill Act was a shot across the bow for solar and wind companies. However, it also generated opportunities for the industry to find creative solutions to complex energy production problems. 

Though residential solar lost its investment tax credits, homeowners can still participate in solar energy through PPAs and leases. They also have access to many state and local incentives, provided they know where to find them. 

At the same time, utility-scale and community solar companies have until December 2027 to complete their projects. Without a safety net, the best option most projects have now is to break ground before July 4, 2026. That would allow them to activate safe harbor rules and buy additional time. Similarly, battery storage may become more popular as it maintains its tax incentives, albeit with a few more strings attached. 

The point is, even though solar took a hit from the federal government, the future remains strong for renewables. Electricity generation and demand are issues in the U.S., and the grid is inflexible and unreliable. Meanwhile, tech companies have employed solar solutions to power massive data centers. 

At this point, the solar industry is entrenched in the United States. Despite headwinds, more doors will open for solar companies, either at the state or even local level. It’s just a matter of time.

How Do Solar Investment Tax Credit Adders Work?

Posted on by Mike Zimm

When it comes to the government, there’s no such thing as a simple, straightforward solution. 

Unfortunately, for developers, financiers, and engineering, procurement, and construction companies, known as EPCs, that means knowing when, how, and where projects qualify for federal solar tax credits. Without them, it’s harder to complete jobs quickly and effectively. 

When the Inflation Reduction Act of 2022 was signed into law, it opened the door for a massive uptick in tax credits for solar. However, not everyone qualifies for all the tax credits, and plenty of intricate rules must be followed to receive them. 

Projects can qualify for ITC solar credits up to 60%, with adders tied to domestic materials and products, location, and low-income communities. 

But what projects qualify for federal funding? 

What is the Base ITC Credit? 

When the Inflation Reduction Act was signed into law, it extended the shelf life of the Investment Tax Credit (ITC) for solar installations and increased its value. 

From now until 2032, solar credits for projects are 30% and apply to businesses and homeowners. After 2032, the credit decreases until it’s finally sunset. For utility-scale solar projects larger than 1MW, the tax credit is 6% but rises to 30% if several criteria are met.  

But what are the criteria, you ask? 

For starters, a project qualifies for the 30% credit if workers are paid prevailing wages. The project also requires a certain number of apprentices to perform the work. There are also rules for apprentice-to-journeyman worker ratios, as outlined by the Department of Labor. 

Accessing the 10% ITC Adder 

Qualifying for the 10% domestic production adder requires projects to satisfy three criteria: 

  • Must be in the United States or an associated territory  
  • Must use new or like new equipment (cannot exceed a certain threshold of used parts)  
  • Cannot be leased to a tax-except entity  

The first 10% Investment Tax Credit available is the domestic content adder. As the name implies, projects must use a certain percentage of U.S.-produced materials to qualify. In the case of steel and iron, 100% of those materials must be U.S.-made as outlined by American Iron and Steel (AIS) rules, meaning everything from sourcing to final finishing has to take place in the United States. 

With that said, the domestic content adder does not apply to subcomponents used for the project, including nuts, bolts, washers, etc. 

Meeting the Project Threshold 

As with any federal funding project, businesses must meet certain criteria before accessing the federal tax credit. 

For the 10% ITC adder, manufactured products must comprise at least 40% of the total project cost. Over time, the threshold will rise, meaning more domestic products are needed to receive funding. 

Offshore wind projects will follow a similar rising threshold schedule, but only 20% of the total cost-adjusted percentage needs to be tied to U.S. manufactured products for now. 

The percentages increase over time, as seen in the table below. 

Year Domestic Product Threshold – Solar Domestic Product Threshold – Offshore Wind 
Before 2025 40% 20% 
2025 45% 27.5% 
2026 50% 35% 
2027 55% 45% 

The threshold for offshore wind will eventually reach 55% after 2027 to match solar projects.

Of course, the rules aren’t as black-and-white as one would hope, and there are breakdowns for how products are classified as domestic or foreign-made. 

For example, only components mined or made in the U.S. count toward the total adjusted content rule. Let’s say you’re using a widget made with three components – two are domestically made, but the third was manufactured overseas. Although the widget was U.S.-made, you only get credit for the two domestically produced components. 

The cost of the foreign-made component would be subtracted from the total cost of the widget, leaving you with the cost of the U.S.-made parts. Whatever that percentage is counts toward the total cost. 

It’s a lot to manage, but the rule is simple: If a component, product, or material is made in the U.S., it counts! But besides the domestic manufacturing component associated with the adder, projects also need to meet one of several conditions, including: 

  • The project has an installed capacity of less than 1MW AC  
  • Construction began before Jan. 29, 2023  
  • It meets prevailing wage and apprenticeship requirements  

Projects meeting one of these conditions are eligible for the 10% credit. 

Concerns About the Threshold 

One common concern from solar EPCs is the difficulty of hitting the domestic product threshold due to a lack of U.S.-based manufacturers for solar products. 

Solar companies have had trouble getting ahold of critical solar power system parts, including solar panels, inverters, BOS components, and racking materials. As the threshold rises, some installers fear the 10% ITC will be too difficult to reach. 

In 2022, the government issued a moratorium on solar tariffs, opening the door for cheaper panels and parts from Asian countries. Though it brings an influx of cheap parts to help installers catch up on delayed projects, they also jeopardize the chances of their solar energy system receiving the renewable energy tax credit. 

Ramping Up Domestic Production 

The moratorium was offered, in part, to keep solar projects moving while domestic manufacturers got up to speed.  

While increased federal support is a boon for companies trying to take market share from foreign competitors, the investment is a long-term strategy that leaves current problems unsolved. 

First Solar is the major solar panel producer in the U.S., but the company does not have the size to meet current demand. Other solar manufacturers include, but are not limited to, Heliene, Mission Solar, JinkoSolar, SunPower, Silfab Solar, and Hanwha Qcells, which all produce different parts of the BOS, but have also struggled to meet U.S. demand in recent years. 

However, several brands, including Qcells, have announced expansion plans in the coming years to support increased demand. For example, Qcells’ expansion in Georgia will add 2,500 jobs and double production at the facility by 2024. 

Other Available Solar Project Credits 

It might seem too good to be true, but the 30% ITC credit can rise as high as 60% in certain situations. 

Energy Community Bonus 

Solar projects can earn an additional 10% credit for building in a former energy community. What’s an energy community? It’s a location that is either a former brownfield site or a facility where coal, oil, or natural gas are mined or converted into energy. 

If the site isn’t a brownfield, the project could still qualify if it satisfies one of several other criteria, including: 

  • Either .17% direct employment OR at least 25% of local tax revenue from coal, oil, or natural gas production or storage AND an unemployment rate higher than the national average 
  • Housed a coal mine that closed after 1999 OR a coal electric plant retired after 2009 

Although many parts of the country qualify under at least one of these conditions, some sections don’t, including much of the Midwest. 

Keep in mind that energy communities should NOT be confused with low-income areas. 

Low-Income Bonus 

This 10% credit is awarded to solar projects that sell electricity to lower-income areas and is for solar installations smaller than 5MW. 

What’s interesting about this clean energy adder is that it has two tiers. Projects receive a 10% ITC if they’re located in a low-income community or on Native American land. If the installation is a qualified low-income residential building project, which, according to the Office of Energy Efficiency and Renewable Energy, requires “financial benefits of the solar facility must be allocated equitably between the residents,” it receives a 20% ITC. 

The Credits Are Complicated, But They Have to Be 

When the government gets involved, it typically comes with heaps of regulatory red tape, but the complexity of this program is vital for a few reasons. 

Tying an ITC or PTC to the program encourages solar companies to buy American-made products, bolstering the economy and decreasing reliance on foreign-made goods like solar panels, racking, and PV wire. 

Programs like this also help with nearshoring and reshoring manufacturing efforts. When domestic goods are prioritized, installers benefit from lower shipping costs, including tariffs and duties, since the material has a shorter shipping distance. 

With higher demand, companies can hire and support additional jobs in emerging industries. These careers often pay well and offer room for advancement, making it possible to make a living in a burgeoning market. It’s also important to consider where the jobs are going. Establishing companies and projects in economically depressed areas and locations where fossil fuel plants once stood keeps jobs in those communities and even adds new ones. 

Credits Keep Solar Moving 

The U.S. is moving toward a sustainable future, but can solar tax credits work? 

Solar is surging in the United States, not just because it produces low-cost energy for communities alongside hundreds of thousands of jobs. Installations can stabilize the electrical grid using new technology, keeping the lights on in homes. As the technology improves, solar could be a low-cost alternative to fossil fuels, reliably producing clean, renewable energy. 

Renewable energy still has a long way to go to become the primary power source for the U.S., but a monumental shift is possible with a clear focus on solutions.