Preserving the ITC through Safe Harbor
With the ITC for solar projects dropping from 30% to 26% in 2020, and 22% in 2021, there are options to legally freeze the 30% ITC for future projects being completed in 2020 and even 3 years beyond. The process is called Safe Harbor.
The significance of this safe harbor period is that solar project owners/developers will be able to purchase equipment equal to 5% of anticipated project costs in 2019 to permit projects placed in service through 2023 to qualify for the ITC at the current 30% rate.
The Internal Revenue Service (IRS) released Notice 2018-59 (the Notice) providing taxpayers with guidance on how to “begin construction” on solar and other renewable energy projects to be eligible for the investment tax credit. The Notice is especially helpful in that it provides a 4-year safe harbor period for solar projects to be placed in service after construction is deemed to have begun.
Renewable Energy World recently published a decision matrix which helps commercial developers understand whether to Safe Harbor, or take the reduced tax credit, as shown in Figure 1 below. Basically, the decision matrix states that if you anticipate a greater than 8 cent drop in component cost per year, you should take the lesser ITC rather than use the Safe Harbor.