A US Federal judge has revoked a law preventing solar PV and wind projects from qualifying for tax credits by committing 5% of the project’s value.
Judge Colleen Kollar-Kotelly at the US District Court for the District of Columbia vacated IRS Notice 2025-42 over the weekend, which had eliminated the so-called “5% Safe Harbour” provision for US solar PV and wind projects over 1.5MW in size.
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The provision is a way for projects to prove the “start of construction” and secure access to the 30% 48E investment and 45Y production tax credits. The ruling comes less than a month before the credits are due to expire on 4 July 2026.
Last year, the IRS removed the 5% safe harbour method as part of changes introduced under the Trump administration’s budget reconciliation bill – the so-called “One, Big, Beautiful Bill”. IRS guidance issued after the bill passed stipulated that renewable energy projects over 1.5MW in size would have to pass a “physical work test” in order to qualify for a tax credit safe harbour, requiring “physical work of a significant nature” to have begun by 4 July 2026.
Several groups, including the Oregon Environmental Council, Natural Resources Defense Council (NRDC) and Public Citizen, brought the case against the IRS. In this week’s ruling, the Court said that Notice 2025-42 was “arbitrary and capricious” based on three findings.
First, that the notice provided inadequate reasoning for removing the 5% safe harbour and failed to explain how certain projects were “circumventing” statutory deadlines or engaging in “artificial manipulation of eligibility.”
Second, that the notice applied technological discrimination in targeting solar and wind projects, despite the 48E and 45Y credits being “explicitly technology-neutral,” according to renewables financing platform Crux.
Third, the ruling said the IRS notice failed to consider alternatives to scrapping the 5% safe harbour despite having “received specific proposals for targeted interventions before issuing the notice”, per Crux. It also failed to consider “reliance interests” for parties that had made investments prior to the law change and the fact that the 5% threshold had been upheld by Congress, the Treasury and the IRS consistently since 2013.
‘Particularly significant’
Reinstating the 5% safe harbour could be a significant boon to US renewables development in the next four weeks, as it opens up another route to securing tax credits. Late last year, experts from US accounting firm Baker Tilly told PV Tech Premium that access to the credits can make or break a project financially.
Responding to the ruling, a note from “big-four” consultancy firm PwC said: “The restoration of the Five Percent Safe Harbour is particularly significant, because it allows developers to establish credit eligibility through early-stage expenditures without needing to demonstrate that physical construction activity has commenced.”
Crux said that “the set of net-new projects that can actually act on this before the July 4 deadline is limited”, but urged developers to review their arrangements and “start of construction” plans. The IRS may issue new guidance or pursue further litigation on this issue, which Crux said could potentially put projects that rely on the 5% safe harbour qualification at the most “elevated” risk.
