Overview

• Notice 2025-42 makes the Physical Work Test the sole path for most wind and solar projects to establish construction start, with qualifying on- or off-site work under binding contracts and excluding preliminary activities and inventory components.
• The 5% spend safe harbor is retained only for low‑output solar facilities with maximum net output of 1.5 MW or less, with integrated operations aggregated for capacity testing.
• The four‑year continuity safe harbor is preserved, but reliance on “continuous efforts” is removed, requiring continuous construction to extend schedules beyond the safe harbor period.
• The guidance is prospective, applying to facilities that did not begin under prior rules before Sept. 2, 2025, and it interfaces with OBBBA deadlines to begin by July 5, 2026 or be placed in service by Dec. 31, 2027.
• Industry reaction was mixed as clean‑energy groups criticized the shift, Senator Chuck Grassley welcomed a “viable path,” solar shares rose on relief the changes were milder than feared, and further FEOC‑related rules remain pending.