As the renewable energy sector continues to evolve, businesses looking to implement solar energy systems must navigate a complex landscape of federal and state-level incentives. While large-scale solar projects often take center stage, smaller solar installations, especially those under 1.5 megawatts (MW), should not be overlooked. These projects provide businesses with unique opportunities to capitalize on significant tax incentives while reducing upfront costs and contributing to long-term sustainability goals (Solar Energy Industries Association [SEIA], 2024).
Investment Tax Credit (ITC) for Projects Under 1.5 MW
The 30% Investment Tax Credit (ITC) for Small Businesses Solar Projects
This continues to be the most important federal incentive for solar. Under current rules, businesses must either (a) place their facility in service by December 31, 2027, or (b) begin construction by July 5, 2026, to secure eligibility. For most projects, this requires demonstrating physical work has started, but solar systems ≤ 1.5 MW (AC) can still use the 5% cost Safe Harbor to meet the “beginning of construction” standard (Internal Revenue Service [IRS], 2025).
Bonus Depreciation
In addition to the ITC, businesses may benefit from 100% bonus depreciation, allowing them to deduct the entire cost of qualified solar property in the first year. This provision was restored and made permanent for renewable energy equipment acquired and placed in service after January 19, 2025 (U.S. Department of Energy [DOE], 2025). For smaller projects, this accelerates cash flow and shortens payback periods.
State-Level Incentives
Many states offer additional support that works alongside federal benefits. These incentives are particularly valuable for smaller, distributed projects that directly support local businesses (National Renewable Energy Laboratory [NREL], 2023). Examples include:
- Property tax exemptions on the added value of solar systems.
- Sales tax exemptions on solar equipment purchases.
- Net metering programs that credit businesses for excess electricity fed back into the grid.
Why Small Business Projects ≤ 1.5 MW Are Attractive
- Easier Safe Harbor Access: Only systems at or below 1.5 MW (AC) can use the 5% cost Safe Harbor to lock in the ITC.
- Faster Payback: Pairing the ITC with 100% bonus depreciation significantly reduces payback time.
- Scalability and Simplicity: Smaller projects face fewer permitting and interconnection hurdles, making them easier to complete before key deadlines.
For businesses seeking renewable energy without the complexity of utility-scale projects, systems ≤ 1.5 MW (AC) remain a strong choice. By combining the 30% ITC, bonus depreciation, and state-level incentives, companies can cut upfront costs, achieve a faster return on investment, and strengthen sustainability commitments. Acting before the July 2026 and December 2027 deadlines is essential to secure these benefits (IRS, 2025; DOE, 2025).
References
Internal Revenue Service. (2025). Notice 2025-42: Sections 45Y and 48E—Beginning of Construction.
National Renewable Energy Laboratory. (2023). Solar benefits and policies. https://www.nrel.gov/
Solar Energy Industries Association. (2024). Federal solar tax credit (ITC). https://www.seia.org/
U.S. Department of Energy. (2025). Clean energy tax incentives and depreciation. https://www.energy.gov/