The US utility-scale solar sector has gone through an extraordinary period of “safe harboring” activity over the past 18 months, as developers worked urgently to secure key tax incentives before several regulatory deadlines arrived. This rush was driven largely by the provisions of the Inflation Reduction Act (IRA) and later by President Donald Trump’s One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025. The new legislation granted developers one additional year to begin construction and safe harbor their projects, allowing up to four calendar years to complete them while still qualifying for the 30% Investment Tax Credit (ITC).
According to new analysis from Wood Mackenzie, developers are expected to safe harbor between 216 and 240 GWdc of solar capacity between mid-2024 and the July 4, 2026 deadline. This is an unprecedented volume—enough to meet projected US solar installations through the end of the decade. Their latest insight, The state of safe harboring: A strategic outlook for US utility-scale solar development, available through Wood Mackenzie Lens Power & Renewables, explores the motivations behind this surge and how it is reshaping the market.
A major driver behind the rush was the need to secure tax credit eligibility under strict Internal Revenue Service (IRS) rules. Safe harboring gives developers four years to finish construction if they meet the required criteria, but additional deadlines made compliance more difficult. One key turning point came in mid-August 2025, when an IRS notice eliminated the use of the Five Percent Safe Harbor method for projects larger than 1.5 MW AC after September 2, 2025. This forced many developers to switch to the Physical Work Test, which requires evidence of continuous construction and often involves purchasing custom transformer equipment instead of standard modules.
A second and even more significant challenge emerged on January 1, 2026, when new foreign entity of concern (FEOC) restrictions took effect. Developers entered this period with considerable uncertainty, as preliminary guidance from the Treasury and IRS did not arrive until February 2026, and further clarification is still expected. Yet most developers managed to safe harbor their targeted capacity before this deadline, largely because they had already anticipated complications and began preparations early in 2024. However, safe harboring does not automatically guarantee a project will qualify for tax credits. Projects that used the Five Percent method may lose eligibility if equipment does not arrive within the 105-day delivery window or if rising costs cause their initial spend to fall below the 5% threshold.
Projects relying on the Physical Work Test could become ineligible if they cannot demonstrate continuous construction. Additionally, any project safe harbored after January 1, 2026 risks disqualification if it fails to meet FEOC requirements. As the July 4, 2026 deadline approaches, the likelihood of delays increases. Utility-scale solar projects frequently face slowdowns tied to financing issues, difficulties obtaining high-voltage transformers (which currently have lead times of two to four years), and bottlenecks in interconnection studies and upgrades. For these reasons, the total safe-harbored capacity may ultimately fall slightly short of current estimates.
Projects that begin construction after July 2026 face even greater challenges. They can still qualify for the ITC if they enter service by December 31, 2027, but completing the entire development cycle in only 18 months is highly unrealistic. Utility-scale solar typically requires three or more years from early planning to commercial operation, and late-starting developers will struggle with equipment shortages, constrained labor availability, and interconnection delays. Module supply may also tighten by late 2026 as the industry adapts to FEOC limitations and potential new tariffs related to the AD/CVD investigation into solar cells from India, Indonesia and Laos, as well as the Section 232 inquiry into polysilicon and related products.
Given these constraints, developers beginning construction after mid-2026 are unlikely to rely on the ITC unless their projects are already substantially advanced in permitting, engineering, procurement and interconnection. Despite these obstacles, utility-scale solar development in the US will continue to expand even after the ITC no longer plays a central role. The surge in safe harboring during 2025–2026 highlights how important credit remains for project economics, but long-term fundamentals—rising electricity demand and the need for large amounts of new generation—ensure the sector remains structurally strong well beyond 2030.
As tax incentives diminish, the industry will shift into a phase where projects must increasingly succeed on their own economic strength. This transition is expected to benefit larger, well-capitalized developers with strong procurement capabilities and established supplier networks, while smaller developers may face more limited opportunities and increasing consolidation within the market.
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