The One Big Beautiful Bill Act, signed July 4, put an expiration date on the federal tax credit for wind and solar. It did not do the same to energy storage.
Last Friday the IRS issued Notice 2025-42, which changed how you prove when construction began. Since the entire law now turns on that question, the two developments have to be read together.
If you are contemplating a commercial solar project, you have roughly eleven months to act, and the method you would most likely have used to act just got harder.
For wind and solar, the law created a hard placed-in-service cliff with one escape hatch.
Pathway A. A project that begins construction on or before July 4, 2026, twelve months after enactment, is not subject to the termination provision. The grandfather is in the act’s effective-date provision, which applies the termination amendment only to facilities whose construction begins after that date. A project in this bucket has no statutory placed-in-service deadline and is governed by the ordinary continuity requirement, which in practice means placing in service by December 31, 2030 to stay inside the four-year continuity safe harbor.
Pathway B. Everything else must be placed in service by December 31, 2027. The statutory language is direct: the credit “shall not apply to any qualified property placed in service by the taxpayer after December 31, 2027, which is part of an applicable facility.”
“Applicable facility” means a qualified facility using wind or solar to produce electricity. That definition confines the cliff to wind and solar and leaves other technologies alone.
The practical reading: begin construction in the next eleven months, or complete and energize a project in under two and a half years. For anything that touches an interconnection study or discretionary permitting, the first path is the realistic one.
This distinction is frequently lost in summaries of the law, and it matters for the water districts and agricultural operations that make up much of our client base.
Standalone battery storage, and storage co-located with solar, is not an applicable facility. It keeps the investment tax credit on a schedule running into the 2030s, with the phase-down keyed to beginning of construction: full credit for construction beginning in 2033 or earlier, then 75 percent, 50 percent, and zero in the following years.
Those years are the earliest the phase-down can begin, not fixed dates. The schedule runs off an applicable year set as the later of 2032 or the year Treasury determines that power sector emissions have fallen to 25 percent of 2022 levels.
A storage project beginning construction next year gets the full 30 percent credit with prevailing wage and apprenticeship compliance, or without it under 1 MW AC, with domestic content and energy community adders stacking on top. Storage’s binding constraint is not timing. It is supply chain, discussed below.
Because everything now turns on when construction began, how you prove it has become the central compliance question.
Historically there were two accepted methods: physical work of a significant nature, or paying or incurring at least 5 percent of total project cost. The 5 percent safe harbor was the workhorse for smaller projects, because it let an owner establish a construction start with a documented equipment purchase rather than mobilizing crews.
Notice 2025-42 eliminates the 5 percent safe harbor for wind and solar. The text is unambiguous: it “is not available for purposes of determining whether an applicable wind or solar facility has met the beginning of construction deadline.”
There is one exception, and it is narrow. Solar facilities with maximum net output of 1.5 MW or less, measured in alternating current, may still use the 5 percent safe harbor. Note the AC measurement, and note that for DC facilities capacity is the lesser of summed DC nameplate or the nameplate of the first inverter. Wind gets no exception at any size.
There is also an aggregation rule that closes the obvious workaround. Facilities of the same technology owned by the same or related taxpayers, placed in service in the same taxable year, and sharing an interconnection point are measured in aggregate against the 1.5 MW threshold.
The notice applies to facilities beginning construction on or after September 2, 2025. Projects that established a construction start under the prior notices before that date are grandfathered, which makes the next two weeks meaningful for anyone close to a decision.
For projects above 1.5 MW AC, the physical work test is now the only path, so it is worth knowing what satisfies it.
The standard is physical work of a significant nature, judged on the nature of the work rather than the amount. There is no minimum dollar figure or percentage.
On site, for solar, installation of racks or other structures to affix panels qualifies. Off site, manufacture of components, mounting equipment, support structures, inverters, and transformers qualifies, provided it is under a binding written contract and the items are not normally held in inventory.
Excluded as preliminary: planning, design, financing, permitting, environmental studies, site clearing, test drilling, and removal of existing equipment. A great deal of what a project team does in the year before construction does not count.
The law also added prohibited foreign entity restrictions, and for storage owners these are now the real constraint.
There are two pieces. An entity-level test disqualifies a taxpayer that is itself a specified foreign entity or is sufficiently owned, controlled, or financed by one, with thresholds including a single such entity owning 25 percent, multiple owning 40 percent in aggregate, or 15 percent of the taxpayer’s debt being held by them. These apply to taxable years beginning after July 4, 2025.
Separately, a material assistance cost ratio looks at the equipment rather than the owner, and applies to facilities and storage beginning construction after December 31, 2025. A project that begins construction on or before that date escapes it entirely, which is a second reason the next four months matter.
The thresholds diverge sharply. For generation facilities the ratio is 40 percent in 2026. For energy storage it is 55 percent. Those higher storage numbers are aimed at Chinese battery cell supply chains and are the toughest sourcing requirements in the statute.
Transferability under Section 6418 survived. The House version would have repealed it; the final law kept it, with the limitation that credits cannot be transferred to a specified foreign entity. Elective pay under Section 6417 also survived, which matters for districts and municipalities that can monetize a credit without a tax appetite.
One hundred percent bonus depreciation was made permanent for property both acquired and placed in service after January 19, 2025. That acquisition condition is often skipped over and matters for equipment under contract before that date.
Gone: the residential credit under Section 25D, for expenditures after December 31, 2025. Section 179D and Section 45L end after June 30, 2026. The vehicle credits end in September of this year.
For solar above 1.5 MW AC, the question is whether you can establish physical work of a significant nature before July 4, 2026, and document it well enough to survive examination years later. That usually means a binding contract for racking or trackers with manufacture actually beginning, and contemporaneous records.
For solar at or under 1.5 MW AC, the 5 percent safe harbor is still available, and projects close to a decision should consider whether establishing a construction start before September 2 preserves optionality.
For storage, timing pressure is lower but the December 31, 2025 material assistance date is real, and battery supply chain diligence should start now rather than at procurement.
For everyone, the begin-construction documentation package is now a deliverable in its own right. Treat it that way.
