In December of 2015, behind growing bipartisan support, Congress passed an extension of the Section 48 Investment Tax Credit (ITC) for solar equipment. The 30% ITC was set to expire at the end of 2015, a mere 13 days after the bill was signed into law. The anticipation of the expiration of the ITC drove a surge in the U.S. solar project pipeline leading to nearly a doubling in solar deployments between 2015 and 2016. Once again, solar developers will face the end of the 30% ITC at midnight on December 31st, 2019. However, in 2015 Congress agreed to a three year “ramp down” ending with a permanent 10% tax credit for commercial solar installations.
Source: Solar Energy Industries Association The reason a 2015 expiration of the ITC lead to a surge in 2016 deployment is due to the IRS rules dictating qualification for the tax credit. A solar project qualifies for the ITC at the time it “commences construction.” It is essential solar installers understand these rules as we approach the ramp down of the ITC as they can have significant impacts on project economics if misjudged.
In June of 2018 the IRS released long-awaited “commence construction” guidance for solar projects. Under the IRS guidance there are two tests that will determine whether, and when, a project has commenced construction for purposes of the ITC:

Physical Work Test:  Construction has started when “physical work of a significant nature begins.” This is a more subjective test than the safe harbor test below. The IRS will look to the “nature of the performed work, not the amount or the cost.” The work can include both off-site and on-site work, but work cannot begin until a binding contract is in place for the solar construction.

Five Percent Safe Harbor Test: A taxpayer can demonstrate that construction has commenced when he/she pays or incurs five percent or more of the total cost of the solar project. If a project using this test later exceeds projected amounts, and the expenses occurred in the year the tax incentive is sought are below five percent, the taxpayer may lose the ability to claim the earlier construction commencement date.

Once either test has been met the IRS requires “continuous work” on the project until the system has been placed in service. Fortunately, the IRS has indicated that it will not require proof of “continuous work” if a project is completed within four years. This is often not an issue for a standard commercial solar project, and all projects must be placed in service before January 1, 2024 to qualify for the ITC regardless. Therefore, continuous work will not be an issue for many commercial solar projects qualifying for the ITC.