Video: Understanding Safe Harbor Programs | Power Forward!
Ever since Congress passed the so-called One Big Beautiful Bill Act (OBBBA) last summer, the solar industry has been focused on looming deadlines to meet eligibility requirements for expiring tax credits. A key part of that process involves safe harboring materials and supplies for upcoming projects. On this episode of Power Forward! Solar Builder editor Brad Kramer speaks with Travis Walker, director of business development at BayWa r.e., who explains everything solar installers need to know about safe harbor programs in 2026.
- 00:50 Safe harbor overview and upcoming deadlines
- 02:05 What if you miss the deadline?
- 02:46 Understanding percentages and eligible expenditures
- 04:08 Demonstrating project construction start dates
- 06:14 How does the IRS define work of a significant nature?
- 08:24 Necessary documentation for safe harboring
- 09:17 Importance of interconnection and permitting
- 10:25 Key takeaways for solar installers to safe harbor projects
Understanding safe harbor deadlines
Kramer: What does it mean to safe harbor a solar project, and what deadlines do installers need to be aware of for 2026?
Walker: Safe harboring is essentially a way to lock in construction, saying that construction has begun by that date. For instance, July 4th is the deadline to lock in your safe harbor. You can’t safe harbor past July 4th. It’s basically saying I began construction by July 4th without actually taking a shovel and actually digging and doing any substantial construction. Because you could do that. You could do substantial construction. You could dig some ditches and [install] racking, rails and panels. You could do that and have the same effect as safe harboring.
Kramer: What if companies miss that July 4th deadline?
Walker: If you miss July 4th, it’s not over and done. The ITC actually expires at the end of 2027, so you have that time to complete a project. Wou can complete a project from now until 2027 to still receive the ITC. The safe harbor does lock you into domestic content percentages as they are in that specific year. So, for this year, 2026, it will lock you into 50%. If you completed the projects in 2027, then if you didn’t save harbor, it would be by those rules and that’d be 54% domestic content needed.
Eligible expenditures for safe harboring
Kramer: Can you talk a little about the 5% rule and what qualifies as an eligible expenditure?
Walker: As the IRS talks about eligible expenditures, you can’t say, well, I have these panels that were sitting in my warehouse and they were 5% of the project cost. They were already there. No, it has to be something that is new to the project. A lot of times what people will do is safe harbor material. And the reason they will safe harbor material is because material has tracking numbers. It has serial numbers. So that tells you when that product was made and you can associate it with specific jobs. The 5% rule is that 5% of my cost of the total project have been spent by X date. Once again, I’m going to say 5% of the total cost of the project. What we hear a lot of times is I want to put a 5% deposit down on material, but it’s not 5% of your material cost. It’s 5% of the total cost of the project. Material is not the only way you can spend that money, but it is one of the cleanest, trackable ways that you spit that expenditure.
Kramer: How does an installer demonstrate beginning of construction, and which projects can still use that 5% rule?
Walker: Beginning of construction can be [demonstrated] in different ways. You can actually begin construction. You can take a shovel, you can start digging, you can start laying the rail, you can do a bunch of stuff, and that would be considered beginning construction. Safe harbor allows you to begin construction because you spent 5% of the project cost. It’s basically saying, “Hey, I’ve spent a significant amount of money on this project. If you made me stop it now or if you made if you didn’t give me the ITC benefit based on that tax year, that would be unfair, because I’ve already spent 5% or more on the project.”
Kramer: What kind of documentation should installers and developers maintain to prove their safe harbor eligibility? What project steps need to be finalized before safe harbor strategy can be executed?
Walker: You have to be able to prove that you’re not working from your current inventory if you’re trying to claim that you have begun work and then evidence that supports that continuance in some ways. From the vendors, some sort of documentation that makes you feel comfortable that it meets the FEOC and/or domestic content requirements that are laid out for you.
Key takeaways for installers
Kramer: What are three key takeaways for solar installers to know about safe harboring their projects?
Walker: Don’t miss July 4th. I can’t scream that from the mountain tops loud enough. I talk to our sales team quite a bit here at BayWa, and I’m like, you are doing your installers a disservice if you are not having a conversation with them right now about safe harboring and what their plan is post July 4th. Let’s make sure everything is clear to every installer. If you do not safe harbor before July 4th, post 2027, how do you win a job against someone who has safe harbor?
The physical work test is something that you need to be able to prove. There’s different ways to prove that you’ve started the project. So please make sure that you’ve done the appropriate steps. Understand that inventory doesn’t count. Preliminary actions in terms of interconnection or permitting don’t count.
Lastly, please understand all your gateways in terms of domestic content percentages, MACR percentages and thresholds. Do you understand how they apply to your specific project? Make sure that you do because that’s going to help you as you’re planning out your business plans for 2028 and beyond.
