On July 7, 2025, President Donald Trump signed an executive order directing the U.S.Department of the Treasury to revise and tighten the “safe harbor” provisions. These changes are likely to impact energy projects, including commercial solar systems that are under consideration.
What is “Safe Harbor” for Commercial Solar Projects?
Under current IRS guidelines, safe harbor allows renewable energy projects to qualify for tax credits based on the rules in effect at the time they “begin construction”—even if the project is completed years later. This legal framework gives developers and owners critical certainty when planning large-scale investments.
There are currently two recognized methods to satisfy the begin construction requirement:
- 5% Safe Harbor Test (Cost Incurred Method)
A project qualifies if at least 5% of total project costs are incurred in the tax year the credit is sought (typically through equipment deposits or invoices for materials/services). We recommend 7% to cover potential project cost increases.
- Physical Work Test
A project qualifies by beginning “physical work of a significant nature” on-site or off-site (e.g., racking installation, transformer work, or pouring foundations). This does not include preliminary activities like planning or permitting.
Once one of these tests is met, developers generally have four years to place the project in service and still retain eligibility for the tax credit level in place at the time of safe harbor.
What Is Changing for the Solar Tax Incentives’ Safe Harbor Requirements?
The executive order specifically calls on the Treasury to do the following within 45 days of the executive order’s signature:
- Shorten the safe harbor timeline for beginning construction, particularly for solar and storage projects.
- Reassess qualifying expenditures for safe harbor status, potentially limiting the types of equipment or services that count toward establishing eligibility.
- Crack down on alleged “abuse” of safe harbor provisions by clarifying rules and increasing audit scrutiny.
Why The Safe Harbor Changes Matter to Solar Projects
If the Treasury follows through with the executive order:
- Fewer projects may qualify for the full 30% Investment Tax Credit (ITC) or Production Tax Credit (PTC).
- Timing will be more critical than ever. Delays in procurement or permitting could jeopardize a project’s eligibility.
- Previously planned safe harbor strategies may no longer apply, requiring re-evaluation of financing and development timelines.
What You Can Do Now to Secure the Full ITC benefits for your commercial solar project
While the executive order is not law, it is a clear signal that changes are coming—and soon.
If you are looking into the incredible, long-term financial benefits of a commercial solar or commercial solar + energy storage project, we strongly recommend that your company:
Accelerate Your Project Timeline:
Act now to safe harbor your project. HES Renewables is experienced in the rules regarding Safe Harbor and can walk you through the options and required steps. Act BEFORE August 21, 2025.
Engage Early with Our Team:
Collaborate with us now to see if your project can be safe harbored under today’s rules. We’ll help you lock in the most favorable incentives before policy shifts create uncertainty.
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We are closely monitoring the Treasury’s response and will continue to provide updates as new rules are drafted or released. Please reach out to us if you have questions about how these changes may impact an energy project for your company.
Important Note: While we strive to provide accurate, timely news, HES Renewables is not a tax advisor, and this blog post does not constitute legal or tax advice. We strongly encourage companies to consult with their internal tax team or external tax professionals to review how these developments apply to each business’ specific financial situation.