Renewable developers face 10-month ‘sprint’ to safe harbor projects for tax credits: experts

Renewable developers have a 10-month "sprint" to start construction by July 4, 2026, to qualify for federal tax incentives under the federal fiscal 2025 budget bill, experts said at a conference Aug. 27, but the US Treasury Department's guidance for implementation "wasn't as bad" as some were expecting.

During an Infocast Texas Clean Energy Summit panel session entitled "Developer Perspectives on Utility-scale Projects in Texas, John Larkey, Geronimo Power vice president of power marketing, said, "We all have to have our heads on swivels with Plan B, Plan C and, in many cases, Plan D" regarding how to proceed with renewable development projects.

Formerly National Grid Renewables, Brookfield Asset Management's Geronimo Power develops, owns and operates large-scale solar, wind and energy storage projects across the US.

Budget reconciliation legislation enacted July 4 terminated the Biden-era Inflation Reduction Act's Section 45Y clean electricity production credit and Section 48E clean electricity investment credit. Under the guidance released Aug. 15, the Internal Revenue Service removed the 5% safe harbor rule for wind and utility-scale solar energy projects. The IRS said construction must begin by July 4, 2026, and be either in service by Dec. 31, 2027, or under "continuous construction" for no more than four years after construction begins, according to the K&L Gates law firm.

For some, guidance 'traumatizing'

"I personally was shocked a little bit that guidance wasn't as bad as I was expecting it to be," Larkey said at the Hilton Austin event. "Personally, it has not been as traumatizing as it is for many of my colleagues who were focused on wind, for whom it's been truly just terrifying to wake up to something like this. Especially, knowing that it could just be a Federal Aviation Administration approval that gets a project put into indefinite hold is scary."

Given supply chain, permitting and other constraints, moderator Becky H. Diffen, a partner in the Norton Rose Fulbright law firm, questioned whether 10 months is enough time for construction to start.

"Are there going to be enough transformers?" Diffen said. "Are there enough engineering, procurement and construction contractors to do the on-site work? I mean, we have 10 months, but 10 months is not super long. So the contracts need to be signed for them. Is there going to be enough? Like how much do you think we could get started so that we have enough projects to then go for the next four years?"

"It's a sprint," Larkey responded. "To your point, I mean, 10 months is not a long time for the folks, giving your organizations in procurement and getting contracts in place. It is a sprint. There are already supply chain issues and long lead times prior to the guidance that came out a week ago."

Surging loads 'exciting'

But several speakers during the conference sessions emphasized that policymakers want "all the resources" available to meet surging demand. Wednesday's first keynote speaker, Kristi Hobbs, Electric Reliability Council of Texas vice president for system planning and weatherization, said its large load interconnection queue totals about 188 GW to be online by 2030, compared with the current official peakload of about 85.5 GW.

"The electricity industry was fairly sleepy for a decade or more, and all of a sudden, you heard Kristi Hobbs talk earlier about the load forecast," said Casey Kelley, Constellation vice president for southern state government affairs. "I think this is an exciting time. You should not let that be missed on us, right?"