News Summary
The Department of Treasury and IRS issued guidance altering construction requirements for wind and solar tax credits. The changes clarify when construction begins and eliminate the 5% Safe Harbor option, which may hinder low-carbon project growth. Stakeholders express concern over the stricter regulations, fearing increased costs and delays for renewable energy initiatives. As the compliance deadline approaches, it’s crucial for industry players to navigate these new rules effectively.
Washington, D.C. – In a significant move for the renewable energy sector, the Department of Treasury and the IRS released new guidance that modifies the construction requirements for wind and solar tax credits as stipulated in Sections 45Y and 48E. This guidance, issued on August 15, 2025, through IRS Notice 2025-42, is a response to an executive order from President Donald Trump aimed at curbing subsidies for unreliable foreign-controlled energy sources.
The new regulations clarify the definition of “beginning construction” for wind and solar projects, tying it to a strict deadline of July 4, 2026. This is in line with the recently enacted One Big Beautiful Bill, which terminates tax credits for wind and solar installations placed in service after December 31, 2027, unless significant construction activities begin by the specified deadline.
One of the most notable changes made by the new guidance is the elimination of the 5% Safe Harbor option for most wind and solar facilities, although the existing Physical Work Test will continue to apply. This test allows projects to establish that construction has started through either onsite activities or offsite work under binding contracts, which includes manufacturing of equipment necessary for the projects.
Moreover, a Continuity Safe Harbor has been retained, which stipulates that as long as a facility is completed within four years of beginning construction, it will fulfill the continuity requirements. While providing a pathway for construction assurance, the new guidance remains vague on the specifics of the documentation process needed to demonstrate an ongoing program of construction.
The guidance will go into effect for any wind or solar facilities commencing construction on or after September 2, 2025. There is a provision for projects that have already satisfied the 5% Safe Harbor criteria before this date to maintain their qualifications. Solar facilities producing less than 1.5 megawatts can still use the 5% Safe Harbor exemption.
Industry experts have noted that the recently introduced guidelines are significantly stricter compared to prior standards. They shift the focus from a financial threshold for establishing the commencement of construction to a requirement emphasizing the physical work done, categorized as “physical work of significant nature.” Activities like surveys and test drilling, however, do not meet the threshold for qualifying as sufficient physical work.
These changes have prompted concerns among renewable energy stakeholders, who fear that the new requirements will hinder the growth of low-carbon energy projects and potentially increase electricity costs. Critics assert that the guidance imposes new obstacles that could slow progress for both wind and solar projects, thus undermining expectations set during the legislative negotiations. The restrictions reflect a rift within the Republican party during the bill’s passage, especially between moderate Republicans and those advocating for more stringent regulations on renewable energy tax credits.
Despite the backlash from parts of the industry, some Republican leaders have expressed approval with the new guidelines, believing they offer a clear path forward for energy projects to meet growing demands. The intent behind this guidance is to enforce a stringent interpretation of construction initiation criteria, making it more challenging for renewable energy projects to prove eligibility for the lucrative tax credits without clear and demonstrable ongoing construction activities.
As the July 2026 deadline approaches, stakeholders in the renewable energy sector will need to adapt quickly to the new regulations to ensure compliance and continuation of their projects. Understanding the implications of this guidance will be crucial for those involved in developing wind and solar energy resources across the nation.
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Additional Resources
- The Hill: Treasury Guidance on Wind and Solar Tax Credits
- Utility Dive: Treasury Commence Construction for Wind and Solar Tax Credits
- Wall Street Journal: European Renewable Stocks Rise After U.S. Tax Credit Guidance
- Recharge News: Wind Power Stocks Surge After U.S. Tax Credit Specification
- Politico Pro: Treasury Reportedly Tightens Screws on Tax Credits for Renewables
Author: STAFF HERE MILWAUKEE WRITER
MILWAUKEE STAFF WRITER The MILWAUKEE STAFF WRITER represents the experienced team at HEREMilwaukee.com, your go-to source for actionable local news and information in Milwaukee, Milwaukee County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as Summerfest, Milwaukee Film Festival, and the Milwaukee Boat Show. Our coverage extends to key organizations like the Metropolitan Milwaukee Association of Commerce and Visit Milwaukee, plus leading businesses in manufacturing and brewing that power the local economy such as Harley-Davidson and MillerCoors. As part of the broader HERE network, we provide comprehensive, credible insights into Wisconsin's dynamic landscape.
