Dive Brief:

• A U.S. District Court for the District of Columbia ruling issued Saturday vacated guidance issued in August by the U.S. Department of the Treasury, which had eliminated the ability for wind and solar projects to prove their eligibility for certain tax credits by showing that 5% or more of the total cost of the project has been spent.
• In her decision, Judge Colleen Kollar-Kotelly remanded the matter to the Internal Revenue Service “for further administrative action” on the guidance following her memorandum opinion.
• With that guidance reversed, there might be a new route for certain wind and solar projects to prove they commenced construction by the One Big Beautiful Bill Act’s July 4, 2026, deadline preserving their eligibility for the 45Y clean energy production tax credit and 48E clean energy investment tax credit.

Dive Insight:

However, given the remand, the potential for “an appeal of the ruling and possible procedural and substantive grounds on which it may be overruled,” and the timeline between the decision and the July 4 deadline, “it is not advisable” to rely on the 5% safe harbor for such projects, the law firm Foley said in a Monday blog post.

The Natural Resources Defense Council, one of the plaintiffs that brought suit against the IRS guidance in December, celebrated the decision in a Monday release and said it “adds to a string of defeats for the Trump administration and its wide-ranging attempts to block new wind and solar energy projects.”

The Treasury Department did not respond to a request for comment.

In her decision, Kollar-Kotelly found that the administration had not satisfied the Administrative Procedure Act’s requirement for “reasoned decisionmaking.”

“Although the Defendants have argued that wind and large-scale solar projects are situated differently than other projects because Congress set an earlier credit termination date for those specific technologies in the OBBBA, the record does not show that the agency made a reasoned decision that this difference in termination date alone should lead to a different methodology for determining the beginning of construction,” she said in her memorandum opinion.

Foley noted that since the matter has been remanded to the IRS, “the agency may issue new guidance, provided it engages in … reasoned decisionmaking, which could in theory reinstate the prohibition on the Five Percent Safe Harbor.”

For projects that cannot meet a physical work test prior to the OBBBA deadline and are expected to be placed in service after December 31, 2027, developers “should evaluate” whether utilizing the 5% safe harbor pathway is advantageous, “but given the uncertainty of what lies ahead, should be aware of the risks” with meeting the safe harbor now, the firm said.

The August guidance had not applied to solar facilities with a net output of less than 1.5 MW, which continued to be able to qualify for tax credits using the 5% cost threshold test.