Without action from Congress this Summer or Fall, the Solar Commercial Investment Tax Credit (ITC) will step down from 26% for solar and solar plus storage projects that “begin construction” in 2022 to 22% for projects that “begin construction” in 2023. Sunwealth is ready to help you position your PPA and Solar Lease projects to “begin construction” in 2022 and lock in the 26% ITC.

Sunwealth worked with Boston Properties to successfully safe harbor this solar project on The Hub in Boston, MA to lock in the 30% ITC in 2020. The project was placed in service in 2021.

What does “Begin Construction” Mean?

Based on IRS guidance and experience, Sunwealth qualifies that a solar project has “begun construction” in 2022 by meeting the Five Percent Safe Harbor requirement, which is satisfied if Sunwealth incurs at least 5% of total project costs in 2022. Sunwealth typically meets this Safe Harbor requirement by entering into an EPC Agreement with our solar installation partner and then making an initial milestone payment that conservatively exceeds 5% of total project costs by the end of the year.

What is the Financial Impact of the 26% ITC Versus 22% ITC?

There are two ways to look at how the step down from 26% to 22% will reduce the value of a solar project. The step down will either reduce: 1) the price that Sunwealth can pay for the project (e.g., reduce the EPC Agreement price), or 2) the savings that the project can provide to its customer (e.g., increases the PPA price per kWh). Using a 20-year fixed price PPA as an example, the step down would either reduce the EPC price by ~6% or increase the PPA price by ~10%. For instance, all other things being equal, the stepdown could reduce a $2.14/watt EPC price to ~$2/watt or increase a $.09/kWh PPA to ~$.099/kWh.

The stepdown will impact every solar project a bit differently and Sunwealth is ready to help you better understand the specific impacts on your PPA and Solar Lease projects.

When is a Project Ready to Five Percent Safe Harbor?

Sunwealth is working with our solar developer and installation partners to Safe Harbor technically and financially sound solar projects that also meet the following development criteria:

Site Control and Power/Credit Contract: The project has an executed PPA or Solar Lease with the customer/host. If it is a community solar project, Sunwealth can help perform the sale of credits

Clear Path to Interconnection and Non-Ministerial Permits: While we prefer having these secured, Sunwealth has also successfully Safe Harbored solar projects that we are confident have a clear path to an interconnection agreement and any non-ministerial permit.

Executed EPC Agreement: We have agreed on and executed an EPC Agreement with our solar installation partner. The first payment enables us to meet the Five Percent Safe Harbor requirement.

Sunwealth Can Help You Lock in 26% ITC

Every time an ITC step down looms, Sunwealth has worked with our solar developer and installation partners to Safe Harbor over a hundred solar projects that have successfully been placed in service in the following year or two. Please reach out to explore how we can help you preserve the value of the 26% ITC and maximize your revenue and customer savings for pipeline of PPAs and Solar Leases.

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About Sunwealth

Sunwealth is a solar investment firm that finances and manages projects that benefit diverse communities and help to democratize access to the benefits of clean energy. We partner with skilled local solar installers, community organizations, and local businesses, to develop community-based solar projects that maximize impact for every stakeholder. Sunwealth has partnered with over 75 EPCs to develop over 500 solar projects across our nation for organizations like schools, houses of worship, nonprofits, local businesses, and municipalities.

This article has been prepared for informational purposes only and should not be relied on for tax, legal or accounting advice. Any and all analyses and related projections are as of the dates stated herein and are subject to change without notice. No warranty or representation, express or implied, is made by Sunwealth or its management regarding the accuracy or completeness of the information or data contained herein. The financial and tax consequences associated with project finance and/or tax credit investing are complex, change frequently and depend on the individual taxpayer's situation.

Safe Harbor in Uncertain Times: Locking in the 26% Solar Commercial Investment Tax Credit