Notice 2025-42: What “Beginning Construction” Now Means for Wind and Solar

The IRS and Treasury issued Notice 2025‑42, resetting how wind and solar projects show they began construction for sections 45Y and 48E. The change is not retroactive. It applies only to facilities that have not begun construction under prior guidance before September 2, 2025.

What changed
For purposes of avoiding the new termination of wind and solar credits, developers can no longer rely on the 5 percent investment safe harbor. Only physical work of a significant nature will establish that construction began in time, with on‑site examples like foundations, piles, and racking, and certain off‑site custom manufacturing under binding contracts that is not inventory. A narrow exception remains for “low‑output” solar at or below 1.5 MW AC, where the 5 percent safe harbor still applies along with aggregation rules.

Key dates
Projects must either begin construction by July 5, 2026 using the Physical Work test, or be placed in service by December 31, 2027. These milestones determine exposure to the wind and solar credit termination under the recent tax law.

Continuity remains familiar
If a project begins by physical work, the four‑year Continuity Safe Harbor deems continuity satisfied when the facility is placed in service within four calendar years. The notice lists excusable disruptions. Industry summaries flag interconnection and manufacturing delays among the factors sponsors should document.

What this means for sponsors and investors
Pipeline triage should focus on three buckets: assets already begun under prior rules that keep their status, assets that can show qualifying physical work by mid‑2026, and distributed generation that may fit the 1.5 MW AC exception. Re‑sequence schedules around site work and custom, non‑inventory manufacturing, tighten documentation on binding contracts and interconnection, and make the non‑retroactivity of Notice 2025‑42 explicit in files and investor communications.

Foss & Company partners with developers and corporate investors to navigate these rules and protect value across portfolios. Contact us to review project timelines and qualification strategies under Notice 2025‑42.