IRS Kills 5% Safe Harbor—But Its Not All That Bad

Hi there,

The rules just changed for real project timelines. IRS Notice 2025-42 scraps the 5% spend safe harbor for most wind/solar and makes physical work (or bespoke off-site manufacturing) before July 5, 2026 the gate to credits—non-retroactive, with a four-year continuity clock. A ≤1.5 MW (AC) DG carve-out survives, but aggregation limits curb “slice-and-dice” strategies.

NEVI is back with stripped-down guidance and ~30-day resubmittals—charger pipelines restart, geography likely reshuffles.

David Rosner becoming FERC Chair (Aug 13) plus PJM’s Aug 12 fast-track for serving large loads signal near-term movement on interconnection and long-range transmission—clearer paths for data-center-adjacent power, storage, and microgrids.

DOE’s ~$1B Critical Minerals & Materials accelerator (NOFO expected Fall ’25) and an expedited advanced-reactor cohort (aiming for test-reactor criticality by July 4, 2026) catalyze nuclear and battery supply chains.

On buildings, Massachusetts ended subsidies for new gas hookups (Aug 14), and Con Edison’s portable-battery pilot expands BTM storage/VPP TAM without permitting friction.

🔦 Signals Worth Monitoring

🔨Headline: IRS narrows “beginning of construction” rules; 5% safe harbor largely gone

What Happened: IRS Notice 2025-42 eliminates the 5% safe-harbor pathway for most wind/solar projects, retaining it only for ≤1.5 MW “low-output” solar that pays/incurs ≥5% by July 5, 2026 and is in service by July 5, 2028; continuity generally set at 4 years.

Why Founders Should Care: This means utility-scale and C&I projects must front-load tangible construction or binding equipment contracts to preserve tax credits, while small DG solar can still use 5%—and critically, the rules are not retroactive, so already begun projects remain protected.

🔨Headline: DOT relaunches $5B NEVI EV-charging funds with stripped-down guidance

What Happened: After court setbacks, DOT issued revised guidance reopening NEVI; states must reapply within ~30 days, with equity/J40 requirements pared back.

Why Founders Should Care: Pipeline restarts for charger installers and software operators, but re-submittals and loosened guardrails may shift project geography and timelines.

🔨Headline: David Rosner named FERC Chair

What Happened: On Aug 13, the White House named David Rosner as Chair of FERC, replacing Mark Christie, who resigned earlier this month after three years on the Commission. Rosner has been at FERC since 2017 and previously worked at DOE’s Office of Energy Policy and Systems Analysis, where he specialized in transmission and reliability.

Why Founders Should Care: Founders and much of the energy industry expect him to prioritize interconnection reform, long-term transmission planning, and integrating surging data center and clean energy demand. For startups, this means clearer signals on how grid bottlenecks will be addressed and potentially faster progress on the very rules that determine whether projects can connect and monetize.

🔨Headline: DOE tees up $1B Critical Minerals & Materials “Accelerator” NOFO

What Happened: DOE issued a Notice of Intent for a ~$1B CM&Ms Accelerator to expand domestic processing, derivative battery manufacturing, and recycling; NOFO expected Fall 2025.

Why Founders Should Care: Non-dilutive capital is coming for cathode/anode refining, recycling, and mid-stream kit—position teams and partners now.

🔨Headline: PJM fast-tracks rules to serve surge in large loads

What Happened: PJM Board moved on Aug 12 to accelerate market/operations changes aimed at reliably serving large new loads (e.g., data centers).

Why Founders Should Care: Earlier visibility for interconnections and load-following resources; data-center adjacency plays (onsite/near-site power, microgrids, storage) gain tailwinds.

🔨Headline: Con Edison tests portable home batteries to curb AC peaks

What Happened: NYC utility kicked off a pilot deploying portable residential batteries to trim summer load.

Why Founders Should Care: Expands the TAM for BTM storage and VPP orchestration—lighter-touch deployments that avoid permanent installs/permits.

🔨Headline: DOE names cohort for expedited advanced-reactor pilots

What Happened: DOE selected 10+ companies (e.g., Oklo, Radiant, Terrestrial) for a pilot aiming for criticality of at least three test reactors by July 4, 2026, under an expedited authorization pathway.

Why Founders Should Care: Nuclear supply-chain and microreactor ecosystems get a near-term catalyst—opportunities in fuel, modular balance-of-plant, and host-site partnerships.

🔨Headline: Massachusetts ends gas-hookup subsidies for new buildings

What Happened: State regulators approved ending ratepayer subsidies for new gas service hookups on Aug 14.

Why Founders Should Care: Strengthens the economics of all-electric new construction—heat pumps, induction, panel upgrades, and grid-services retrofits.

📌 RFP Bulletin

MassCEC — CriticalMass (Startup Grants)

• 📅 Key Dates: App deadline Sep 22, 2025 (concept papers - tomorrow - Aug 20)

• 🎯 Focus Areas: Early-stage climatetech commercialization (hardware/software)

• 🗺️ Region: MA

• 🔗 RFP Link: https://www.masscec.com/program/criticalmass

MassCEC — Technology Development & Acceleration (FY26 TDA)

• 📅 Key Dates: Concept papers due Sep 12, 2025; Full apps Nov 14, 2025

• 🎯 Focus Areas: University–startup tech maturation, pilot prototyping

• 🗺️ Region: MA

• 🔗 RFP Link: https://www.masscec.com/sites/default/files/documents/TDA_FY26_Request_for_Proposal_Amended_08_04_25.pdf?utm_source=chatgpt.com

San Diego Community Power — Solar Advantage RFO (Round 2)

• 📅 Key Dates: Sep 8, 2025

• 🎯 Focus Areas: Community-sited solar + BESS in disadvantaged communities

• 🗺️ Region: CA (San Diego)

• 🔗 RFP Link: https://sdcommunitypower.org/solar-advantage/

📝 Founder Briefing

IRS ends 5% spend safe harbor for wind & most solar

What changed:

• For projects that start construction on/after Sept 2, 2025, the only way to beat the credit-termination trigger is to begin “physical work of a significant nature” before July 5, 2026 (e.g., piling, foundations, racking, or off-site custom manufacturing under a binding written contract). The 5% spend safe harbor is gone.

• Exception: low-output solar ≤1.5 MW (AC) can still use the 5% safe harbor. But IRS adds an integrated-operations rule that aggregates facilities in the same tax year under same/related owners via the same POI or serving the same behind-the-meter end user—so “slice it into 1.5 MW blocks” often won’t fly.

• Continuity stays: 4-year continuity safe harbor (place in service by Dec 31 of the 4th year after you start). If you miss it, you drop into facts-and-circumstances, where IRS lists excusable disruptions (permits/interconnection/supply/labor/weather/disasters/financing).

• Grandfathering: If you already met “begin construction” under prior guidance before Sept 2, 2025, you keep that status.

Why founders should care:

• The game shifts from spend-first to steel-first. You need visible site work or bespoke factory work tied to your project (and not inventory) to lock status. Paperwork quality now equals project value.

• The ≤1.5 MW carve-out helps DG—but the aggregation rule is a trap for portfolio roll-ups sharing a POI or end user in the same year.

• Tax equity will demand tighter evidence (binding contracts, non-inventory attestations, dated photos/logs) and clearer continuity plans.

Grey areas to watch:

• “How much is enough” physical work? IRS says it’s nature of work, not dollars; there’s no minimum spend—which moves you into a facts-and-circumstances zone. (Good for flexibility, tougher on documentation.)

• Inventory vs bespoke off-site work: only custom components tied to your project count; anything “normally held in inventory” is out—expect diligence on vendor practices.

• Continuous construction (not just “efforts”) outside the 4-year safe harbor: law-firm alerts flag higher bars and the importance of matching your force-majeure/continuity covenants to IRS examples.

• 1.5 MW definition + aggregation mechanics: window remains, but analysts caution against over-relying on serial micro-sites; integrated-ops will collapse many into one project.

📒 Founder Playbook and Takeaways

1. Front-load qualifying work: Lock binding written contracts for project-specific racking/inverters/transformers; get factories started before July 5, 2026; collect non-inventory attestations.

2. Build the continuity file now: Gantt with monthly physical-work logs, dated photos, engineer sign-offs, and a matrix mapping IRS excusable disruptions (FERC/EPA/BLM/FAA permitting, interconnection, supply, labor, weather, financing). Target 12/31/2029 COD if you start in 2025; 12/31/2030 if you start in 2026.

3. Use the ≤1.5 MW carve-out carefully: To preserve 5% safe harbor, avoid same-year + same POI/end-user + related-owner combos; stagger tax years, vary POIs, and separate ownership/control when legitimate. Document nameplate (AC) per IRS definition.

4. Tighten contracts: Mirror IRS language in continuity/force-majeure clauses.

5. Evidence bundle for tax equity: One binder per asset: timeline, invoices, binding contracts, non-inventory letters, site photos with GPS/time stamps, and counsel memo summarizing how you satisfy the Notice.

6. Track FEOC separately: This notice does not set begin-construction for FEOC/prohibited-entity rules.

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