Impact of OBBB on on-site solar, battery economics & timing

🔥 Exec Summary: federal tax credits for solar, energy storage, and other technologies are changing. A new law signed on 7/4/25 (One Big Beautiful Bill (OBBB)) will soon remove the 30%+ federal investment tax credits (ITC) on solar. Yet it largely maintains the 30% credit value for energy storage. The rules are complex, and critical implementation details are still in flux with the US Treasury today. The bottom line is that for solar projects, there’s now an industry sprint underway to move from concepts to contracts, and lock in terms under current financial terms.

What this means for commercial landlords & tenants: there is an open but limited window to lock in a no-cost “call option” on ITC-supported solar projects. To give projects the best chance of benefiting from today's tax credits, and avoiding the potentially onerous foreign materials requirements, we advise that feasibility and procurement commence ASAP, so that contracts can be signed in 2H’25.

What happened: tax credit changes in the OBBB

OBBB shrinks the ITC window for rooftop solar. The One Big Beautiful Bill (signed July 4, 2025) ends the technology-neutral 30 % Section 48E ITC for solar projects placed in service after December 31 2027.

More detail:

• The Section 48E ITC for solar (30% base federal tax credit to the system owner) will be fully phased out for projects that are signed, developed, constructed and finally Placed in Service (PIS) after December 31, 2027, except for projects that begin construction within 12 months of enactment of the OBBB.
• Projects that begin construction within 12 months of enactment of the OBBB (i.e., by 7/4/2026) are allowed PIS dates in 2028, 2029, and 2030.
• However, all projects that do not begin construction by December 31, 2025 are subject to the material assistance from prohibited foreign entities rules (FEOC), the full impacts of which are still being analyzed by the industry.

Escape hatch: “commence construction” by 7/4/26

The one escape hatch is to commence construction no later than July 4 2026; these projects  get until the end of 2029–30 to finish, but anything starting after the cutoff loses the credit.

How to “commence construction” today.

Until Treasury says otherwise, solar developers can rely on the long-standing IRS tests:

1. Physical-work test – start on-site work of a substantial nature (e.g., rooftop penetrations, racking foundations, primary service wiring);
2. Safe-harbor test – incur or pay ≥ 5 % of total project cost under a binding contract (often via module or inverter orders) and keep the project moving forward.

Solar Developers will generally make these commitments once they have clear commitment from the customer in the form of a signed lease, PPA, or similarly binding agreement.

NOTE: Treasury shake-up is imminent. An Executive Order issued 7 July 2025 instructs Treasury to tighten BOC guidance within 45 days -- by August 21st 2025 --, explicitly warning that “broad safe harbors” may be curtailed unless a substantial portion of the facility is actually built. Expect fresh rules by mid-August that could narrow what counts toward the cost-based Safe-harbor test or require more on-site physical work. To learn more, see commentary from the law firm Sidley Austin.

Practical takeaway  for solar projects: act now

If you want the 30% ITC on a rooftop solar project: move quickly—conduct feasibility, get bids, complete, contracting, so that your chosen Developer can (a) kick off roof and electrical work or (b) place equipment orders totaling ≥ 5 % of the all-in budget before new guidance drops.

Get a free evaluation for any property from Lumen Energy here.

Batteries largely retain access to tax credits, yet with greater requirements for domestic content

1. Battery ITC largely preserved. The accelerated phase-out OBBB imposed on wind and solar does not apply to energy storage technology—including storage installed alongside a wind or solar facility. Batteries remain eligible for the Section 48E ITC on the original (longer) statutory timeline rather than facing the 12-month begin-construction / 2027 placed-in-service squeeze that now governs wind and solar.

2. Credit value framework unchanged: base 6% / 30% with labor rules; adders still stack. Under Section 48E, storage continues to earn a 6% base credit that steps up to 30% when prevailing wage & apprenticeship (PWA) requirements are met; domestic-content and energy-community bonus amounts remain available, allowing effective rates materially above 30% when stacked.

1. Domestic content: OBBB did not cut back the Section 48E eligibility timeline for battery storage, but it did harmonize (raise) domestic-content thresholds for 48E to match 45Y, and set a stepped schedule (e.g., 40% → 55%+ depending on start date) that also applies to energy storage technology.

3. Commencement-of-construction interplay when paired with solar. Because the harsh new deadlines target wind and solar, a co-located project can, in principle, have its storage portion qualify under the longer battery schedule even if the solar portion misses the wind/solar deadlines, provided the battery meets the 48E rules on its own (cost allocation, separate interconnection or functional independence often used in practice—confirm with tax counsel). The statute and early guidance emphasize that the wind/solar phase-out “does not apply…to energy storage technology, including [storage] placed in service at a wind or solar facility,” so careful structuring and documentation matter. See for more: Gibson Dunn

4. Watch the Treasury crackdown on BOC safe harbors (5% cost test). While the same 7/7/25 EO mentioned above focused on wind/solar, any integrated project (solar + storage) should assume closer scrutiny of commencement-of-construction claims and maintain robust evidence (binding contracts, incurred costs, physical work logs) until guidance lands.

5. Foreign-sourced supply chain limits now bite batteries too. OBBB layers in new Prohibited / Specified Foreign Entity and “material assistance” cost-ratio rules across Section 48E technologies, including storage.

Will solar pencil in a post-OBBB world?

Yes. but differently.

All else equal -  reducing solar tax credit cuts solar IRRs, and reduces solar lease rates that Developers can pay Landlords.

But other factors are not equal. Over the next 12-24 months, the loss of solar tax credit will be offset against these mitigating factors:

1. Rising electricity prices. Utilities have already requested $29 billion in rate increases for just the first half of this year, hitting 40 million Americans. Already-rising retail electricity prices will now get pushed higher, which will both support higher rooftop lease and PPA rates.
2. Expanding state policies. These rising prices are pushing local governments to seek relief in power prices rises by incentivizing local power generation. New Jersey just legislatively required an additional 3GW of commercial rooftop solar by 2029, with a focus on commercial rooftops. Other states like MA, CT, and CO are expanding their programs, while utilities in the southeast like Georgia Power test first-of-kind procurements of commercial rooftop solar.
3. Lower financing costs. removing tax credits removes the need for esoteric tax-equity financing. This will lower the cost of capital.
4. Batteries can hybridize with solar. federal tax credits remain for batteries through 2030s, which are in ever-greater demand by utilities as they fall in cost.

Lumen is already supporting many of the largest institutional real estate owners to smartly advance their solar strategies. Lumen's data platform runs live financial models against thousands of commercial properties to determine the highest $NPV option across multiple financing types to support any ownership strategy.

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