Rush Toward Another ‘Safe Harbor’ Begins for Solar Industry

It’s no secret the solar industry has been stockpiling components such as panels and racking since before the Inflation Reduction Act. Under threat of a shortened runway to qualify for credits recently made reality with the passage of the reconciliation bill, the trend has very definitely accelerated.

Developers and EPCs are rushing to safe harbor materials to claim the full credit.

COMMENTARY

One way to achieve this “safe harbor” is by building on business relationships with adaptable suppliers, especially in light of the requirements that clean electricity projects start construction by July 4, 2026, or go into service by year-end 2027. In addition to related Foreign Entity of Concern requirements, the pressure on project budgets and timelines is rising.

Specifically, developers and EPCs (engineering, procurement, construction), who are becoming more risk-averse, are increasingly seeking partners who are demonstrably reliable, primarily those with strong balance sheets. This should be no surprise given the ongoing volatility in the supply chain and shifting regulatory conditions. It’s more crucial than ever before to look for partners that can offer flexible, diversified strategies–whether it’s navigating tariffs, adapting to the new bill, or solving emerging supply challenges.

For example, to meet the Internal Revenue Service (IRS) safe harbor requirements for renewable energy tax credits, owners and developers have a few key options:

1. Begin meaningful physical work on the project, which can include initiating custom manufacturing of project-specific components.
2. Purchase at least 5% of the total project materials

For projects where the owner does not yet have site access, option 2 is typically the only viable path forward, and often the most cost-effective.

Successful Execution

Successfully executing either path requires a dependable and experienced partner, one capable of manufacturing, storing, and delivering the required components on time. This goes beyond simply having production capacity. Documentation must be accurate, and the exact components that were purchased or manufactured must ultimately be delivered to the project site. Substitutions or alternate production runs won’t meet the IRS standards.

If the supplier fails to execute properly, the project risks forfeiting the entire 30% investment tax credit, a potentially catastrophic outcome that could lead to project cancellation.

Tariffs on steel are an issue of particular concern for distributed and utility-scale solar photovoltaic because they require a significant amount of steel-based components for their ground-mount systems. We’re seeing that developers and EPCs are giving preference to racking partners that can deliver 100% domestically sourced steel.

Another risk is steel’s price volatility as a commodit—it continues to put budgets and timelines at risk. So it’s best to work with racking manufacturers that proactively lock in steel pricing across portfolios. Recently, Terrasmart secured 12 months of steel pricing stability for a major customer’s multi-project pipeline on a tentative schedule and provided them with cost certainty and improved planning flexibility.

Another key sign of a strategically sound racking company is its long-term manufacturing strategy, especially if it were put in place before current levels of volatility. Here are some key questions to gauge the strength of such strategy:

• Does the company have long-term domestic manufacturing capabilities with secure materials supply to meet unprecedented demand?
• Can it deliver a wide variety of ground mount foundations like ground screws, ballasts, and driven piles to support projects in various conditions? Does it have a wide portfolio of fixed tilt and tracker technologies to adapt to your sites’ needs? Can it support rooftop projects such as canopy systems?
• Does it use innovative methods like high-velocity manufacturing techniques to speed production and provide on-demand flexibility?
• Does it have a track record of vertical integration, rare among racking suppliers, that combines racking with eBOS, or domestically produced modules to increase supply chain control and transparency tailored to America’s solar industry?

At the end of the day, racking companies can’t stop at simply de-risking steel procurement—they need to continuously de-risk across materials and processes into the future. This philosophy should be embodied in how their leaders operate.

• Do they share information cross functionally within their organization to leverage insights across sales, marketing, procurement, government affairs, etc.?
• Do they scrutinize quarter-by-quarter intelligence and constantly revisit short- and long-term planning?
• Do they focus on continuously creating value through vertical integration?

With the passage of the bill, more than ever, solar industry suppliers need to anticipate and adapt to national policy shifts to support EPCs and developers in commercial, distributed generation, and utility-scale solar.

Your racking partner can and should be a strategic partner—a critical piece of your company’s own strategy to help you de-risk your solar projects through these continually tumultuous times.

—Yury Reznikov is chief sales officer for Terrasmart.