Under the Inflation Reduction Act (IRA) of 2022, solar and wind energy projects were eligible for a 30% Investment Tax Credit (ITC), with a gradual phase-out of the credits beginning in 2032. In 2025, the One Big Beautiful Bill Act (OBBBA) significantly tightened the timeline for solar projects. Under the new requirements, solar projects that began construction after July 4, 2026 must be placed in service by December 31, 2027.
Then the Department of the Treasury Notice 2025-42 tightened the rules for any solar project larger than 1.5 MW, stating that start of construction no longer means that 5% of a project must have been paid for. Instead, the 5% rule is replaced with the Physical Work Test, which defines the start of construction as when “physical work of a significant nature begins” on site. For many developers this means investing in transformers, driving steel piles or finishing significant portions of foundation work by July 4th.
(Read: “One big bad bill for solar projects.”)
As a result of these changes, the trajectory of the U.S. solar industry has slowed. A downward trend in completion of solar projects was noted in the Solar Market Insight 2025 Year in Review report released by the Solar Energy Industries Association (SEIA) and Wood Mackenzie. The report found, for example, that tax credit changes brought by the OBBBA led to a 14% decline in installations in 2025 compared to the previous year.
While the immediate effect of the tax credit change was a surge in announced utility-scale solar and energy storage projects to the tune of 1 GW in new capacity, according to E2’s latest Clean Economy Works, the boom in announced construction lagged far below the clean energy trajectory in the years following passage of the IRA. E2 reported that between 2022 and 2024, companies announced more than 1,000 manufacturing and utility-scale generation and storage projects nationwide. Since the start of 2025, fewer than 200 new projects have been announced. Instead, project cancellations and downsizing became more common, with E2 estimating that nearly 10 GW of new capacity has been cancelled.
These cancellations come at a time when demand for new electricity generation is at an all-time high.
“The clean energy industry still sees enormous demand for new electricity generation, manufacturing, and grid infrastructure,” said Michael Timberlake, communications director at E2. “What we’re seeing is not a lack of demand—it’s growing policy obstacles and uncertainty making it harder for businesses to complete projects.”
ITC support
The U.S. solar industry has grown by more than 10,000% since the modern ITC was enacted in 2006, according to the Solar Energy Industries Association (SEIA), making it what SEIA considers “one of the most important federal policy mechanisms to support the growth of solar and storage in the United States.”
The ITC has gained bipartisan support in part because of the surge in solar in red states. SEIA noted that solar is surging states that traditionally vote Republican because it is the fastest, most cost-effective option for new power. “When conservative states cut red tape and allow solar to compete, utilities and developers choose the generation source that delivers the best product and that choice is overwhelmingly solar.”
In April, four Republican representatives introduced The American Energy Dominance Act to help lower costs, strengthen domestic supply chains, drive long-term investment in energy infrastructure, and support good-paying union jobs. Other similar legislation has also been introduced, yet experts say the chance of passage is slim. “Congress is pretty gridlocked,” Hilary Lefko, attorney with Norton Rose Fulbright told pv magazine USA. “We could see a broader coalition of support after the midterms, [though] it does not seem very likely at this point.”
Beyond the deadline
With the July 4 start-of-construction deadline in the rearview mirror, solar developers who missed the cutoff can still work toward qualifying for tax credits in a variety of ways. To begin with, they can get their projects in service by the end of 2027. Other ways to claim tax credits, Lefko said, is to add storage and claim tax credits on that instead of solar; buy partially developed projects that started construction and complete the project; hope Notice 2024-42 gets revoked and satisfy the safe harbor; or find a way to make the project economically viable without tax credits.
Wood Mackenzie’s Solar Market Insight Q2 2026 report notes that it will take some time to adjust to a post tax credit world. All is not lost, however, as SEIA reports there are now 262 GW of direct-current of solar capacity installed nationwide, enough to power 45 million homes. Many legislators on both sides of the aisle see the strength of the ITC, and with declining installation costs and increasing demand for clean electricity, solar will soldier on.
Comments
Please login to comment
Thursday, July 16, 2026
4:00 pm – 5:00 pm CEST, Berlin, Paris, Madrid
The June issue of pv magazine Global is out now!
Available in print and digital – get your copy today!
Thursday, September 9, 2026
11:00 am – 12:30 pm CEST, Berlin, Paris, Madrid
A two-day conference in Austin, Texas, bringing together leaders in US solar manufacturing, equipment specification, and factory execution.
Entries open in seven categories: Modules, Inverters, BoS, BESS, Manufacturing, Sustainability, Projects.
April 01 – August 31, 2026
pv magazine USA hosts its third multi-day virtual event on advancing U.S. solar and energy storage markets, covering financing, supply chains, and distributed energy’s role in grid resilience.
You have no items in your basket.
You must be logged in to post a comment.