For over a decade, the Investment Tax Credit (ITC) has been the cornerstone of U.S. solar finance. That era is ending. The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, terminates the clean electricity credits under Sections 45Y and 48E for wind and solar facilities that miss two critical deadlines—reshaping how projects are financed, sequenced, and underwritten.
The two deadlines that now define solar finance
Under the OBBBA, a solar facility loses ITC and PTC eligibility unless it clears one of two gates:
- Beginning of construction by July 4, 2026. Projects that begin construction on or before this date remain credit-eligible under the familiar four-year continuity safe harbor.
- Placed in service by December 31, 2027. Projects that begin construction after the deadline must be fully operational by the end of 2027—a far riskier standard, since completion depends on interconnection queues, permitting, and supply chains outside the owner's control.
For pipelines that cannot satisfy either test, the federal tax credit that has anchored tax-equity structures for a generation simply goes away.
What "beginning of construction" means now
The rules for establishing beginning of construction have been contested since enactment. IRS Notice 2025-42, issued in August 2025, eliminated the long-standing Five Percent Safe Harbor for most projects, leaving the facts-and-circumstances Physical Work Test as the sole method. In June 2026, a federal district court vacated that notice in full—restoring the 5% spending safe harbor, at least for now, though appeal risk and further guidance remain live possibilities.
The practical takeaways:
- Document everything: physical work of a significant nature, safe-harbor equipment spend, and contract dates must withstand diligence
- Continuity matters: grandfathered projects must still be placed in service within the four-year continuity window
- Regulatory risk is real: structures should be stress-tested against both safe-harbor outcomes
Storage is the exception
Critically, the OBBBA's termination provisions target wind and solar—not standalone battery storage. BESS projects retain ITC eligibility under Section 48E, subject to foreign entity of concern (FEOC) sourcing restrictions that tighten over time.
This asymmetry is already changing capital allocation. Storage-heavy strategies preserve tax-credit value that solar-only pipelines are losing, and solar-plus-storage projects must now be modeled leg by leg, with different credit assumptions for each asset.
What it means for investors and developers
The end of the ITC does not mean the end of solar economics—it means underwriting shifts from tax-driven to fundamentals-driven returns:
- Grandfathered projects command a premium. Assets with defensible beginning-of-construction positions carry embedded credit value that late-stage buyers will pay for.
- Post-ITC projects must stand on their own. PPA pricing, equipment costs, and interconnection timing carry more weight without a 30%-plus credit offsetting capex.
- Tax-equity and transfer markets contract. As the eligible pipeline shrinks, credit buyers and tax-equity investors will compete for a smaller pool of qualified projects.
How Sunlight helps
Sunlight Energy Investments underwrites solar and storage across both sides of the transition—validating beginning-of-construction positions on grandfathered assets and structuring post-ITC projects around durable, contracted cash flows.
Developers and investors navigating the credit phase-out can explore our advisory services or contact our team.