1. Commercial, Industrial & Community-Scale Projects

Smaller solar and wind projects, including installations on commercial and industrial facilities, government buildings, schools, and nonprofits, can meet these deadlines. This category spans a wide range of project sizes and ownership structures, but they share a common characteristic: they can be moved quickly to be placed in service before December 31, 2027. A rooftop solar installation on a manufacturing facility, a ground-mount array behind a water treatment plant, or a solar canopy over a municipal parking lot can move from concept to an energized system more quickly than larger projects.  For these projects, the ITC applies at the 30% value – and may extend up to 50% or more when including the bonus credits, making projects more viable. Bonus credits may be available for projects located in energy communities, low income communities, or using high levels of domestic content. Tax-exempt nonprofits and public entities can take advantage of Elective Pay (also called direct pay) which makes the credit accessible as a direct cash reimbursement from the IRS. 

What Elective Pay Means for Public Entities

Under Elective Pay, tax-exempt entities such as state agencies, local governments, Tribes, rural electric cooperatives, and nonprofits can receive a direct IRS payment equal to 30% or more of project costs, even though they have no tax liability. Learn more here.

What States Can Do Now

1. Build projects on state buildings: Identify eligible state-owned facilities and issue a directive or executive order to prioritize solar and storage projects on those properties before the placed in service deadline. Consider launching a bulk procurement program. A state can aggregate solar demand across multiple public facilities such as: state agencies, school districts, municipalities into a single procurement vehicle to reduce per-project costs, attract better developer terms, and accelerate contracting timelines. Bulk procurement can compress months of individual procurement into a single competitive process. States across the country continue to take advantage of direct pay to make these projects pencil. 

2. Educate and convene: Ensure site owners – commercial, public and nonprofit – understand the tax credit opportunity. Partner with municipal leagues, county associations, school board associations, hospital networks, and faith communities to push outreach directly to entities that may not be aware of the opportunity and its approaching deadline. Host webinars, workshops, or gatherings for local governments and nonprofits on elective pay mechanics, placed in service requirements, and Foreign Entity of Concern (FEOC) material sourcing rules. The learning curve can feel daunting and states can assist in flattening it.

3. Provide financing bridges and loan programs: State green banks, revolving loan funds, and energy offices can offer bridge financing to help eligible entities cover upfront costs while awaiting elective pay reimbursements.

4. Identify and support shovel ready projects: Explore projects identified in previous state plans, such as those identified in state Priority Climate Action Plans that have not been built. Identify projects that may have lost IRA funding, which may be shovel ready but lacking financing to support. Pre-development cost assistance is especially valuable for smaller governments and nonprofits without project finance expertise who may be pursuing community scale projects. Work with the economic development agency to identify commercial and industrial sites such as manufacturers, distribution centers, food processors, universities, hospital systems whose facilities are well suited for solar. A state energy office or economic development agency can proactively provide beneficial information to spur more projects.

2. Projects Using Surplus Interconnection Capacity 

Most utility-scale projects cannot commence after July 4, 2026 and expect to be placed in service by December 31, 2027, due to the lengthy interconnection and permitting processes, but Surplus Interconnection Service (SIS) may provide an exception. SIS projects add new energy resources faster and at lower-cost by using existing and underutilized grid capacity to avoid long interconnection timelines. Solar, wind, battery storage, or hybrid systems can interconnect at existing power generation sites, as long as total output does not exceed the site's approved capacity. SIS projects can be completed in as little as 12-18 months in some cases, unlocking a new opportunity to utilize the tax credits by the 2027 deadline if developers act fast.

What States Can Do Now

1. Engage developers directly: Understand the available resource in your state and tell developers about it. Communicate with and convene developers around the opportunity presented by surplus interconnection service and the remaining tax credits. Ask them: what are the specific obstacles that are keeping projects from being placed in service by 2027? Developers can help identify bureaucratic, regulatory, and financing bottlenecks and work with the state to overcome them. The engagement itself can signal that the state’s leadership is serious about working to resolve the issues.

2. Engage generation owners directly: Help generators understand the opportunity they have available to them. Connect site owners with developers seeking to build additional generation.  

3. Establish a Surplus Interconnection Service registry or marketplace: Direct the energy office, or work with the PUC and utilities, to create a formal or informal mechanism for connecting motivated sellers of surplus interconnection assets with qualified buyers, including: developers, utilities, independent power producers, municipal power authorities, or state entities. Even a simple voluntary registry can unlock additional capacity and opportunities for projects to reach the 2027 deadline.

4. Establish a construction expediting function: Create a dedicated interagency team, or a single empowered coordinator, with authority to identify and remove permitting, siting, and environmental review bottlenecks for projects with active interconnection agreements and 2027 timelines. Fast-track state permit reviews for these projects and hold agencies accountable to defined timelines. States can create a dedicated State Permitting Coordinator role to serve as a central point of contact and facilitate coordination across state, federal, and tribal permitting agencies.

5. Leverage economic development tools: Offer siting fee waivers, property tax exemptions, or expedited environmental reviews for projects that demonstrate a credible placed in service timeline before end of 2027. These projects represent construction jobs, long-term tax base, and grid capacity the state can utilize while taking advantage of a more affordable power procurement for their residents.

3. Leased Residential Solar 

While the federal residential solar tax credit under Section 25D was terminated by the OBBBA, effective December 31, 2025, homeowners can still benefit if they install solar systems with third-party ownership (TPO).  Solar leases and Power Purchase Agreements (PPAs) still allow for residential solar projects to access the tax credits.

How Third-Party Ownership Preserves Federal Incentives

When a solar company owns the system installed on a homeowner's roof, rather than the homeowner, that company can claim the commercial ITC under Section 48E for 30% of project costs at base value, and potentially 50% of more when adders for domestic content, energy community siting, or low-income community bonuses apply. The savings from that credit are then passed to the homeowner in the form of lower monthly lease or PPA payments. This is now the primary mechanism through which residential customers can access federal solar incentives. For TPO providers, the same deadlines apply: construction must begin before July 4, 2026, or the system must be placed in service by December 31, 2027. States should seek to remove barriers and optimize this model to bring more affordable energy generation online quickly

Critical Caveat: Not All States Allow TPO

State law either allows or limits the availability of residential solar leasing. In many states, robust TPO markets give homeowners flexible options — but as many as 17 states currently lack active TPO providers, and in some cases state law or PUC regulations create legal barriers to third-party electricity sales that effectively prohibit the model altogether. Following OBBBA’s repeal of 25D, homeowners in those states now do not have access to any federal credits for residential solar systems.

What States Can Do Now

1. Streamline interconnection for residential-scale solar: Work with utilities to adopt simplified interconnection standards and require them to process residential solar interconnection applications within defined timelines. For example, Massachusetts established tiered interconnection tracks with binding timelines requiring utilities to approve residential-scale systems (≤15 kW) within 15 days. States can encourage participation in programs like SolSmart, a national designation that helps communities streamline solar permitting, zoning, and interconnection or the SolarAPP+ platform, an online tool that expedites residential solar installation approvals.

2. Ensure adequate consumer protection rules for solar lease and PPA contracts: Consumer confidence is essential to market growth. States should review whether existing consumer protection statutes adequately cover residential TPO solar contracts, and close any gaps through rulemaking or legislation.

3. Launch public education campaign: Many consumers do not know that leasing represents a viable alternative for residential solar projects. State energy offices, utility commissions, and consumer protection agencies can partner to provide clear, accurate information about the options that remain.

4. Authorize third-party ownership: While states without active third-party ownership markets may not have sufficient time to enact reforms ahead of the current deadline, removing statutory and regulatory barriers would position states for future opportunities and to provide more flexibility for homeowners today.

Beyond the Deadline: Longer Horizons for Other Technologies

The urgency of the placed in service deadline applies specifically to solar and wind energy projects. However, clean energy deployment does not stop in 2027, and states should be planning now for the continued use of affordable reliable energy technologies, with and without tax credits. 

Energy storage, geothermal, hydropower, nuclear, and other zero-emission technologies retain tax credit eligibility under Section 48E and related provisions on extended schedules with 100% credit available for projects commencing construction through 2033 and stepping down gradually through 2035. These technologies represent a major opportunity for clean energy deployment. States can use the next 18 months to prepare by developing pipelines, clearing siting and permitting pathways, and engaging utilities on long-range procurement to be positioned well to capture the additional development opportunities.

Solar and wind are expected to remain among the lowest-cost sources of new electricity generation, meaning states should continue building pipelines for these technologies regardless of tax credit status to support long-term ratepayer affordability.

The Bottom Line for State Leaders

States that move with urgency to assist in green-lighting projects, streamlining permitting, taking advantage of surplus capacity, utilizing third party ownership solar markets, and educating their constituencies can unlock the benefits of affordable and clean energy. 

For questions contact: Rachel Chamberlain rachel@s2strategies.org