RenewVerde Newsletter – August 2025

Start Construction Definition Changes

The One Big Beautiful Bill Act ended investment tax credits for wind and solar projects after 2027. However, projects which are already under construction by July 4^th, 2026 will have 4 years to complete construction to receive the tax credit. Large projects take several years to complete, so developers are racing to get their projects started before the July deadline. Shortly after the bill passed, President Trump released an executive order to make the definition of under construction more strict. For more information on both of these topics, see last month’s newsletter here. 

This month, the Treasury Department released updated guidance on what qualifies for a solar or wind project to have begun construction. The previous rules allowed for a project to meet the construction requirements by showing that 5% of the project costs had been paid or by showing that significant physical construction had begun. Most projects would opt for proving construction with the 5% cost standard and safe harbor their other equipment costs to receive the ITC as well. The new rules will only allow this for very small plants (under 1.5 MW), so solar and wind projects will need to prove significant physical work has occurred on projects if they intend to capture the ITC by showing construction before July 4^th of next year. 

The new guidance also clarifies what will qualify as work of a significant nature. On-site or off-site work may be taken into account to demonstrate the physical work requirement. Off-site work of a significant nature includes manufacturing components and required parts for a project. On-site physical work for a solar farm includes the installation of racks, and for a wind farm it includes foundation building or when the developer enters a contract with a manufacturer to build the parts. With these guidelines, there is no fixed minimum amount of work or investment required to satisfy the physical work test. The new rules also clarify what are considered “preliminary activities” which do not qualify as work of a significant nature. These include: planning or designing, securing financing, exploring, researching, mapping and modelling, obtaining permits, site surveying, environmental and engineering studies, clearing a site, soil testing, excavating to change the contour of the land, and removing existing structures from the site. This rule change will make it more difficult for projects to be considered under construction, as well as harder to prove that the project has met the requirements.

Additionally, projects that meet the physical work test before July 4^th next year must be completed within 4 calendar years, or be continually under construction until the project is complete, except for when construction must stop due to circumstances outside the developer’s control. Projects that delay and are not completed within the time frame given will not receive Investment Tax Credits. Some of the exceptions where pausing construction is permitted include weather conditions, permitting delays, governmental delays, interconnection delays, manufacturing delays, labor stoppages, financing delays, supply shortages, etc. 

These rules will go into place on September 2^nd, 2025. Projects which are already under construction based on the Five Percent Safe Harbor will not have to prove physical work of a substantial nature to be considered to have started construction.

Read the guidance here

Impacts on Solar and Wind Development

Before this guidance was released there were concerns that the new rules would require plants which were previously approved as under construction to have to re-prove their status using the updated definition. The fact that this is not required will help projects which are currently in the construction process get built. Another benefit of this guidance is that it was published very quickly after the One Big Beautiful Bill Act passed. Getting the new rules right away reduces the uncertainty that otherwise would have made investing in projects much more difficult.

That being said, this guidance still leaves a lot of unanswered questions, and the new under construction definition will be more difficult for plants to reach and prove before the July 4^th, 2026 deadline. The Five Percent Safe Harbor method of showing that a plant was under construction was clear cut, objective, and easier to verify. The new requirement for physical work of a significant nature is not clearly defined, especially around off-site work and the quantity of work required. Although there are some examples of what would qualify and what would not, there is a large gray area for project development steps such as ordering solar panels or other equipment to be manufactured, or how much of the racking or foundations need to be installed to count as enough physical work of a substantial nature.