Posted in Blog
By Tony Liu, Founder and Principal Business Trial Attorney
In Summary:
Clean energy credits are set to expire at the end of 2025, and with that, a valuable financial incentive for business owners may vanish. For those considering commercial solar projects, now is the time to evaluate whether to fast-track or pull the plug. This article explains how clean energy credits work, the consequences of delay, legal risks to avoid, and strategic alternatives—so you can make a confident, calculated decision before it’s too late.
The Clock Is Ticking on Clean Energy Credits
The clean energy credit landscape is changing fast, and for business owners looking to reduce costs or boost ESG performance with solar, the window of opportunity may be closing. With federal clean energy credits set to sunset in 2025, the decision to move forward or wait could impact not only ROI but also legal exposure and business continuity.
This isn’t just a tax issue. It’s a strategic business decision with implications for operational expenses, vendor relationships, and long-term asset value.
What Are Clean Energy Credits—And Why 2025 Matters
Clean energy credits are financial incentives provided by the government to encourage the adoption of renewable energy sources. For commercial solar, the primary benefit is the Investment Tax Credit (ITC), which currently allows businesses to deduct 30% of the cost of installing a solar energy system from their federal taxes.
But this generous incentive won’t last forever.
Under the current rules established by the Inflation Reduction Act, this 30% credit begins to phase out after December 31, 2025, unless new legislation extends or modifies it. In other words, businesses that don’t at least “begin construction” before that deadline risk losing a large portion of their projected savings.
Source: U.S. Department of Energy
The Business Case for Acting Now
For businesses with large facilities, warehouses, or high utility bills, commercial solar is more than a sustainability initiative—it’s a hard-nosed financial decision.
Current Benefits:
- 30% tax credit (ITC)
- Bonus depreciation, which allows for faster cost recovery
- Long-term operational savings on energy bills
- Improved property value
- Stronger ESG positioning, appealing to investors and stakeholders
In high-cost utility regions like Southern California, these benefits are especially compelling.
But with a narrowing timeline, what was once a calculated opportunity is quickly becoming a high-stakes deadline.
What Happens If You Wait Too Long?
Delays That Could Kill Your Incentive:
- Permitting backlogs: Especially in cities like Irvine and Anaheim where municipal approvals can take months.
- Supply chain issues: Panel shortages and overbooked contractors can delay start dates well beyond your control.
- Vendor overpromising: Some solar companies will overcommit to close deals, leading to disputes later when deadlines aren’t met.
To qualify for the full credit, the IRS requires that your project “begins construction” before December 31, 2025. This doesn’t just mean signing a contract, it could involve placing a significant equipment deposit or starting on-site work.
Without meeting these benchmarks, your business could miss out.
Should You Fast-Track or Scrap the Project?
This isn’t a yes/no question. It’s about timing, readiness, and risk management.
Fast-Track If:
- Capital is available or already financed
- Property is solar-ready (roof space, orientation, minimal shading)
- You have reputable vendors with a clear track record
- Legal contracts include timeline guarantees and penalties for delays
Consider Scrapping or Delaying If:
- You’ve been pitched by aggressive vendors with unclear terms
- Your team lacks capacity to manage a project of this scale in 2025
- Property presents major permitting or structural obstacles
- Your financing would be too costly to justify the current returns
Remember: There’s a difference between urgency and panic. Fast-tracking is smart only if it’s done with full legal and operational clarity.
Legal Landmines to Avoid Before You Sign Anything
Solar projects can go sideways quickly—especially when contracts are signed under pressure. Too many business owners fail to consider the legal structure behind the deal.
Watch For:
- No penalties for missed deadlines
- Uncapped change orders (unexpected costs)
- Vague language around tax credit eligibility
Best Practices:
- Use independent legal counsel, don’t rely on vendor-supplied agreements
- Require detailed construction schedules and milestone-based payments
- Ensure contracts reference IRS “commence construction” rules
For a deeper dive into best practices in solar contracts, see SEIA’s Model Leases and PPAs
Strategic Alternatives If Solar Doesn’t Make Sense Now
Energy-as-a-Service (EaaS):
Instead of owning the system, companies can pay for energy use via a power purchase agreement (PPA) or solar lease. This reduces upfront costs but may impact long-term ROI.
Utility-Backed Green Programs:
If you’re unable to install solar, some utilities offer renewable energy credits to offset your carbon footprint without investing in infrastructure.
Reassess in 2026:
Depending on election outcomes or economic changes, Congress may renew or reshape these incentives. If your property isn’t solar-ready now, keep an eye on legislative developments.
FAQ
1. What are clean energy credits, and when do they expire?
Clean energy credits are federal tax incentives that reduce the cost of renewable energy installations. The current 30% Investment Tax Credit (ITC) is set to phase out starting after December 31, 2025, unless extended.
2. Can I still qualify for the 30% tax credit in 2025?
Yes, but only if you commence construction before the deadline. This could mean placing a deposit on materials or starting site work. Simply signing a contract does not guarantee eligibility.
3. What does “commence construction” mean under IRS rules?
According to the IRS, you must either start physical work of a significant nature or pay at least 5% of total project costs by the end of 2025. Documentation is critical in case of future audits.
4. What legal issues should I be aware of when signing a solar contract?
Avoid agreements that lack clear timelines, cost caps, or performance guarantees. Always use third-party legal review before committing to any solar installation.
5. Are there alternatives to installing solar panels directly?
Yes. Businesses can consider power purchase agreements (PPAs), leasing options, or purchasing renewable energy credits from utility providers to support ESG goals.
In Conclusion: The Window Is Narrow, but the Risks Are Real
If you’re considering a solar investment to reduce costs and align your business with clean energy goals, the urgency is real, but so is the risk. Delaying could mean missing out on tens or hundreds of thousands of dollars in clean energy credits. But rushing into a contract without legal protection could be worse.
Business leaders who built their success on strategic thinking, discipline, and integrity know the value of smart timing. Solar is not just a feel-good project—it’s a high-stakes investment that must be protected from unreliable vendors, vague contracts, and shifting regulations.
Don’t let a lack of due diligence today lead to regret, litigation, or financial loss tomorrow.
Schedule a consultation today to review your solar plans, contracts, or vendor proposals. We’ll help you decide whether to fast-track, restructure, or walk away—on your terms.
