SOLAR: Experts discuss safe harboring equipment ahead of incoming Trump administration

Solar developers have been safe harboring their projects ahead of potential tax policy changes from the new Trump Administration, similar to actions taken in 2016 and 2020 on the heels of other elections, industry executives told NPM in recent interviews.

Following guidance from the IRS and US Treasury, companies have been actively safe harboring projects through mainly two methods in recent weeks and months: breaking ground on physical construction or procuring at least 5% of project materials and equipment to ensure their solar projects receive the full, 30% Investment Tax Credit (ITC) they qualify for through the current tax structure.

The safe harbor provision essentially locks solar projects into the tax credit of a given year so long as they either start building or buy parts. There is still an eight-year runway on incentives outlined in the IRA, so safe-harboring projects is just a precautionary measure at this point, but the practice safeguards solar developers if parts of the IRA are repealed under the new administration.

“The Inflation Reduction Act that was passed in 2022 was intended to have a 10-year period on it, but given the GOP trifecta, there is more risk on that,” Todd Fryatt, CEO and founder of solar and battery storage project developer ECA Solar, told NPM during a recent podcast. “Frankly, our industry is very accustomed to dealing with legislative cliff dates, as well as just standard regulatory risk.

While 2025 is a new political environment, Fryatt emphasized that companies have safe harbored their projects regarding solar ITC several times since the tax credit initiative became law in 2006. Nick Sangermano, president of GS Power Partners, recalled safe harboring discussions in 2017 following other tariff-related concerns.

“It is a little bit of Back to the Future – there is some comfort with ‘this is kind of what you do when there is a bit of uncertainty,’” said Sangermano, adding that “we look at it as it is a great reason to execute faster. It’s money well spent, and we want the megawatts.”

GS Power Partners sees some of the uncertainty in the market as an opportunity to acquire late-stage projects that they can help get across the finish line in 2025. Sangermano expects safe harboring discussions to continue into 2025 until the new administration gives more clarity on the future of tax laws.

US President-Elect Donald Trump has targeted IRA’s electric vehicle tax credits for the chopping block but has not laid out plans regarding other parts of the IRA, such as tax credits to build clean energy resources like solar and wind or incentives for clean technology manufacturing and production, which have been popular in recent years.

According to data from Bloomberg, at least USD 206bn has of investments in clean energy technology manufacturing have been announced since outgoing US President Joe Biden took over, mostly going to electric vehicle and battery storage facilities. Approximately, USD 161bn has gone to Republican House districts, while USD 42bn went to Democrat districts. This discrepancy could make the IRA more difficult to repeal, despite Republicans uniting in opposition to the law two years ago.

In the meantime, the industry supply chain has been active in the last few months of 2024, Fryatt said, with companies buying and warehousing modules, transformers, and other materials ahead of the new year.

The physical construction safe harbor test must be for continuous work that is crucial to the project – not just fences and port-o-potties, Fryatt emphasized. Projects that are already close to construction might opt for this method, he said.

The other strategy, which includes procuring at least 5% of equipment needed for a project, is usually the more popular safe harbor method for companies. Fryatt said solar modules are popular equipment that is procured for the 5% test, with inverters, racking and transformers as other options. Another industry executive told NPM that they expected a run on transformers as companies await a new tax bill.

“Typically, it is tangible equipment – in our view, interconnection deposits are likely not going to qualify towards the 5% safe harbor rules,” Fryatt said. “The theme is that the government wants real, hard binding agreements. They want real skin-in-the-game commitment and liability and everything else, so that is what they are looking for in these two tests.”

For ECA Solar, Fryatt said the company deploys both safe harbor methods for its current projects and has been procuring modules it believes do not have tariff risk. He said the company thinks its best practice is to procure between 7%-7.5% of equipment to give a slight buffer of that 5% threshold.

“Historically, I would say module prices are still at relatively all-time lows. That has been an issue in previous errors of safe harbor procurement, but right now I would say module prices are very modest,” Fryatt said.

Brightcore Energy head of solar development Ben Reisman declined to share his company’s specific strategy for safe harboring projects, but said it is something they have dealt with following past elections. The industry is also grappling with tariff risk, added Reisman.

“The future is unknown, so we’re just going to have to work on strategies to try to prepare for it and utilize our experience from these past step downs and apply that moving forward,” Reisman said.

Despite some companies, including ECA Solar, having “a bad taste in their mouth” from safe harboring in the past when it ultimately was not necessary, Fryatt said he expects well-funded and capital rich projects to safe harbor by procuring parts, especially at the utility-scale level.

“It has to do with how those owners and investors perceive the legislative risk and regulatory risk,” Fryatt said. “We think it’s material enough to take action, and it’s certainly justified perhaps paying a premium for this quote unquote insurance policy.”

*This story was originally published exclusively for NPM subscribers.

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