There are only three things certain in this world: death, taxes, and that solar is unstoppable. The IRS has effectively extended solar subsidies by up to four years. Previously, to qualify for the full 30% Investment Tax Credit (ITC) solar projects had to be COMPLETED before January 1, 2020. Now, they only have to BEGIN construction before January 1, 2020. To get the full tax credit of 30% the project has to be finished before January 1, 2024.
Projects begun before January 1, 2021 will get a 26% tax credit, but must also be completed by January 1, 2024.
Projects begun before January 1, 2022 will get a 22% tax credit, but must also be completed by January 1, 2024.
According to IRS Notice 2018-59, to qualify as having begun construction there are “two methods for taxpayers to establish the beginning of construction (Physical Work Test and Five Percent Safe Harbor)”. Under the first method, physical work does not even have to begin on the site. Solar equipment can actually begin being assembled offsite. Under the second method, only 5% of the cost of the project must be spent excluding land costs. The notice states, “Both methods require that a taxpayer make continuous progress towards completion once construction has begun (Continuity Requirement).”
In addition to the solar subsidies, other energy subsidies have been given extensions. All subsidies are summarized in the table below.
In case you were wondering the definition of a small wind turbine, the notice states, “to qualify for the ITC, a qualifying small wind turbine must have a nameplate capacity of not more than 100 kilowatts.”
The extension of the solar subsidies are coming at a crucial time since the Donald Trump administration has placed tariffs on solar panels. Thankfully, the extension of these subsidies will more than offset the cost of Trump’s tariffs. The tariffs only apply to the solar panels themselves. Conversely, the subsides apply to the entire cost of the solar project. With the cost of imported solar panels expected to fall to $0.25 per watt or below (excluding tariffs) in the relevant timeframe, solar panels, roughly speaking, should only be 1/4 to 1/3 of the cost of the entire solar project.
The continuance of these subsidies will leave solar in far better shape. Solar companies have been given wide latitude to meet the “beginning of work” requirement, and it is going to be quite interesting to see what they come up with to maximize the subsidy they can receive.