In the years since the Inflation Reduction Act was enacted, U.S. solar construction has seen consistent annual growth in both the commercial and utility markets; the latter charging forward and making solar the largest source of new electricity on the American grid in recent reports.
With the passage of HR1, or the One Big Beautiful Bill Act, the subsidies bolstering U.S. solar output are slated to sunset with a significantly shorter runway than previously granted by the IRA. However, the fine details of these waning incentives are still in flux.
Large-scale solar ITC changes in HR1
- Must begin construction by July 4, 2026 or enter service by the end of 2027 to qualify for the ITC. Projects that start construction within 12 months must finish within four years.
- Safe harbor is still in effect for projects beginning construction before effective date of any legislative change.
- Bonus adders are still available while the ITC is still in effect.
- Non-residential solar project owners can still receive direct pay and transfer project-related tax credits.
As it stands, the Investment Tax Credit (ITC) — the primary subsidy for solar construction from the IRA — has a shortened effective length. Projects that start construction one year after HR1 was enacted, July 4, 2026, are still eligible for the ITC and must be placed in service by the end of 2027.
To understand the current status of additional large-scale solar incentives, Solar Power World corresponded with Raiza Kho, director of tax with Scrubbed, an accounting firm specializing in renewable energy financing and tax qualifications, among other fields.
SPW: Has safe harbor been affected by HR1?
Kho: HR1 threatens to eliminate the ITC for non-residential solar projects, which would affect the availability of safe harbor provisions. However, until any repeal or modification becomes effective, the current safe harbor provisions — including those for domestic content — remain in effect for projects that begin construction before the effective date of any legislative change. Practitioners should closely monitor legislative developments to determine the continued availability of the ITC and its associated safe harbors.
Do bonus adders still exist through the end of the ITC?
Yes, the bonus adders for the ITC, including the domestic content, energy community and low-income community bonus credits, still exist and are available through the end of the ITC period under HR1. There is no indication in the enacted law or legislative summaries that these bonus adders have been repealed or sunset before the end of the ITC period. They continue to apply to eligible projects, including those qualifying under the new technology-agnostic Sec. 48E Clean Electricity Investment Credit for property placed in service after 2024.
Where does the domestic solar industry stand in the foreign entity of concern (FEOC) situation?
HR1 imposes strict prohibitions on the use of components or materials from prohibited foreign entities — including China, Russia, North Korea and Iran — for projects seeking federal tax credits under Secs. 45Y and 48E. Solar and other clean energy projects that include panels, inverters or other components manufactured, assembled or containing critical minerals from these entities are ineligible for credits if construction begins after December 31, 2025. The act requires taxpayers to obtain and retain supplier certifications and comply with new recordkeeping and reporting requirements, but it does not mandate a universal “FEOC-free supply chain” certification for all manufacturers. These new rules represent a significant tightening of eligibility and are expected to have a substantial impact on sourcing, supply chains and credit eligibility for the U.S. solar industry.
How has this affected direct pay and transferability?
HR1 did not repeal or materially change the direct pay (Code Sec. 6417) or transferability (Code Sec. 6418) provisions for the ITC as they apply to non-residential solar projects. Non-residential solar project owners can still utilize direct pay if they are an “applicable entity” (such as a tax-exempt organization or government entity) or transfer the ITC to an unrelated taxpayer for cash, as established by the Inflation Reduction Act of 2022.
More coverage of how HR1 affects U.S. solar:
