A DC court’s decision broadening the pathway to safe harbor solar and wind projects for Biden-era tax credits will have little direct impact on development activity, according to experts.

But the decision spotlights the uncertainty that has clouded efforts to lock in eligibility for the expiring tax credits since last year.

Since August 2025, wind and solar developers have raced to begin “physical work of a significant nature” in advance of a 4 July deadline to maintain eligibility for clean energy tax credits.

Prior to last August, when the Treasury Department tightened its regulatory guidance for establishing start of construction for the purposes of safe harbor, developers could also demonstrate the start of construction on a project by deploying 5% of a project’s total capital costs.

Projects that don’t start construction by the 4 July deadline will lose eligibility for investment tax credits (ITC) and production tax credits (PTC), if they are not placed in service by the end of 2027.

On 6 June, a DC federal judge reinstated the 5% threshold, ruling that Treasury and the IRS failed to provide a reasoned explanation for their decision to scrap the longstanding “Five Percent Test.”

The decision was welcome news within the renewables sector, Dorian Hunt, a partner who leads Leo Berwick’s Energy and Renewables tax practice, told this publication. But coming so close to the July deadline, it will not have much direct impact on finance or development activity.

Developers have been aggressively working to safe harbor their projects under the physical work standard for nearly a year. By this time, he said, developers have pretty much settled on their safe harbored portfolios.

“The cake is kind of baked at this point. I don’t see much opportunity to undertake new efforts related to start of construction,” Hunt said.

Project sponsors may, however, start looking back to see which of their projects have already met the 5% safe harbor threshold to provide an additional layer of certainty about their tax credit eligibility, Hunt said.

That could broaden the spectrum of available creditors and insurers available to support a given project by easing concerns about a threat of a significant challenge from the IRS.

“You may see a broader pool of capital or insurance providers open up, because some of them may not have liked the facts and circumstances around the physical work safe harbor. But, if you can demonstrate both, that might unlock opportunities to attract different stakeholders to your capital stack,” said Hunt.

Defining ‘beginning’

The reinstatement of the Five Percent Test caps a months-long dash by developers to lock in eligibility for tax credits under a physical work standard that is much fuzzier than the bright line 5% standard, said James Bowe, a partner in King & Spalding’s corporate practice.

The guidance, for example, says work can be conducted offsite – on major components, for instance – to satisfy the start of construction requirements, but only if the components in question are built specifically for the project in question. The guidance also excludes “preliminary activities” from the physical work standard.

“The general view has become that the more bespoke the expenditure and the work is, the more likely it is to pass the physical work standard,” Bowe said.

“It put a premium on people finding the most exotic things that they could order or build, in order to be certain that their project will make the cut,” he added.

Leo Berwick’s Hunt said many of his discussions around safe harbor have focused on what purchases might pass the physical work requirement for safe harbor.

“We’ve had a lot of conversations about, ‘What sort of non-inventory components does the project need? Have you reached out to suppliers to see what components they can produce on your timeline?’” he said.

Bowe said that the overall environment for renewables developers has been improved by the district court’s decision, because it provides some assurance to investors that US courts will push back against abrupt regulatory changes from federal agencies.

But the limited time between the 6 June decision, and the likelihood that the Trump administration will appeal the decision, significantly limit its impact on development and investment decisions.

Added diligence

The uncertain nature of the physical work standard, and industry fears that the IRS could aggressively fight some tax credit claims, have also added an additional administrative burden on developers, said Bowe.

Developers with the resources have undertaken painstaking efforts to document work and purchases to meet the physical work requirement to establish start of construction, Bowe said.

Some developers have even been taking geolocated time-stamped photos to document project work, he said.

“There was a time when a lot of this stuff was done fairly informally. That time has passed,” Bowe said. “You really do need to be documenting dates, and locations of work.”

That all works to the disadvantage of smaller developers with fewer resources, who have felt significant pressure from the added administrative burden, said Bowe.

“The bigger players are fine, I think. Some of the smaller developers are now looking to sell out because they recognize that the ability to deal with some of these government challenges is going to be key, and they may not have it,” he said.

Overall, the challenges around safe harboring projects have been reflective of a broader atmosphere of uncertainty around the renewables sector under the current administration, said Hunt.

“It’s hard to attract capital, it’s hard to make decisions on larger projects, when the policy landscape is changing under your feet,” he said.