U.S. Solar Industry Accelerates 'Safe Harbor' Efforts Amidst IRA Deadlines and Supply Chain Volatility
Key Insights
U.S. solar developers are accelerating efforts to 'safe harbor' components, such as panels and racking, to secure federal tax credits under the Inflation Reduction Act's tight deadlines.
The industry faces pressure to begin construction by July 2026 or achieve service by end-2027, driving demand for financially stable and adaptable suppliers to mitigate risks.
Compliance with IRS safe harbor rules, either through significant physical work or purchasing 5% of materials, is crucial to avoid forfeiting the 30% Investment Tax Credit.
Developers are increasingly prioritizing partners offering domestically sourced steel and proactive price locking strategies to counter supply chain volatility and tariff impacts.
The U.S. solar industry has significantly accelerated its efforts to stockpile components, including panels and racking, a trend intensified by the recent passage of the reconciliation bill. This strategic maneuver aims to meet critical ‘safe harbor’ requirements, enabling developers and engineering, procurement, and construction (EPC) firms to qualify for the full federal investment tax credits.
Under the Inflation Reduction Act, clean electricity projects must commence construction by July 4, 2026, or achieve commercial operation by year-end 2027 to secure these vital credits. Coupled with emerging Foreign Entity of Concern stipulations, these deadlines are exerting considerable pressure on project budgets and timelines. Consequently, developers and EPCs, increasingly risk-averse, are prioritizing partnerships with demonstrably reliable suppliers possessing robust balance sheets, a direct response to ongoing supply chain volatility and evolving regulatory landscapes.
To meet Internal Revenue Service (IRS) safe harbor requirements, project owners and developers typically pursue one of two primary paths: initiating meaningful physical work, which can include custom manufacturing of project-specific components, or purchasing at least 5% of the total project materials. For projects lacking immediate site access, the 5% material purchase option often presents the most viable and cost-effective solution.
Successful execution of either path necessitates a dependable and experienced partner capable of manufacturing, storing, and delivering the precise components on schedule. This extends beyond mere production capacity, demanding accurate documentation and strict adherence to component specifications, as substitutions risk forfeiture of the entire 30% Investment Tax Credit—a potentially catastrophic financial blow that could lead to project cancellation.
Steel tariffs pose a particular concern for both distributed and utility-scale solar photovoltaic installations, given their substantial reliance on steel-based racking systems. This has led to a growing preference among developers and EPCs for racking partners capable of delivering 100% domestically sourced steel. Furthermore, steel’s price volatility continues to threaten project budgets and timelines, driving demand for racking manufacturers that proactively lock in steel pricing across multi-project portfolios, as exemplified by Terrasmart’s recent 12-month price stability agreement for a major customer.
Strategically sound racking companies are also distinguished by their long-term manufacturing strategies, particularly those established prior to current market volatility. Key indicators include secure domestic manufacturing capabilities, a diverse portfolio of ground mount foundations and tracker technologies, and the adoption of high-velocity manufacturing techniques. Vertical integration, which combines racking with eBOS or domestically produced modules, is becoming increasingly valued for enhancing supply chain control and transparency within the U.S. solar industry. Ultimately, effective suppliers must continuously de-risk across all materials and processes, adapting to national policy shifts to support EPCs and developers across all solar segments.