Over the past year, a number of challenges have affected solar photovoltaic developers, putting increasing pressure on project margins, schedules and logistics and in some cases, threatening the feasibility of projects altogether. Both Federal and Hawaiʻi State legislation have added additional pressure on the feasibility of projects that also affect the ultimate goals of renewable energy implementation, which is in direct conflict with long-standing public policy.
Historically, developers relied heavily on the 5% Safe Harbor rule to secure valuable Investment Tax Credits (ITC). By spending 5% of the project cost, developers could lock in tax credit eligibility years in advance of physical construction. However, recent IRS guidance has fundamentally disrupted this procedural strategy:
- The elimination of the 5% rule for large wind and solar projects exceeding 1.5MW (AC) in capacity.
- The Physical Work test is the new standard. Large-scale developers must now prove that “physical work of significant nature” (e.g. excavating foundations, installing racking or manufacturing custom components under binding contracts) has actually begun.
- If a project begins construction after July 4, 2026, it faces a strict in-place, in-service deadline of December 31, 2027. Failing to meet this means losing the ITC entirely. In the case of Hawaiʻi, recent legislation brings the deadline for in-service to December 31, 2026.
- Only small solar projects (<1.5 MW (AC)) retain flexibility of using either the physical work test or the 5% spending threshold to secure tax eligibility. If these small projects meet the safe harbor requirements the completion threshold is extended to the end of 2030.
For Hawaiʻi Pacific Solar (HPS), these changing requirements have made early project planning and coordination with development partners even more critical. Many projects require months or years of development before construction begins, so identifying tax-credit deadlines, construction milestones and procurement requirements early can help reduce the risk of projects being caught by changing regulations.
Tariffs and Domestic Sourcing Requirements
Tariffs have had a significant effect on the supply chain. Sourcing solar modules and components in 2026 is a complex geopolitical balancing act. Procurement teams are juggling multiple layers of trade penalties and strict domestic compliance mandates. The U.S. continues to aggressively levy Anti-Dumping and Countervailing Duties on solar cells and modules imported from Southeast Asian nations including India, Indonesia and Laos. Compounding this, Section 232 investigations into imported solar-grade polysilicon threatens to further squeeze cell manufacturing margins globally.
The Foreign Entity of Concern (FEOC) domestic content hurdles also adversely affect the supply chain. To qualify for the 10% Domestic Content Bonus Credit, developers must navigate increasingly strict sourcing requirements. Projects cannot claim full credits if critical materials are heavily sourced from prohibited foreign entities. To maintain basic ITC compliance, a growing percentage of the facilities manufacturing products must be sourced from non-prohibited countries (40% for solar projects starting construction in 2026, climbing to 45% in 2027.)
Further impacting global prices, China’s Ministry of Finance phased out its 9% VAT export rebate on PV exports. This immediately shifts an approximately 9% cost increase to buyers of Chinese made PV equipment.
While U.S. solar module assembly has expanded rapidly, reaching approximately 70% of total domestic demand, a significant upstream bottleneck remains: the availability of domestically manufactured solar cells. The U.S. currently has only a fraction of the cell manufacturing capacity needed to support domestic module assembly. It’s not just the modules and cells. Other critical components, including inverters, switchgear and high-voltage transformers, are also facing extended lead times. Steel used in canopy structures can take up to 20 weeks for fabrication and delivery, with pricing fluctuating significantly.
These conditions have changed the way HPS and our development partners must approach procurement. Rather than treating equipment purchasing as a later stage of construction, identifying long-lead components and potential supply constraints has become an important part of early project planning. HPS works with our partners to monitor material availability, pricing and procurement timelines so critical equipment can be secured as early as project schedules allow.
This proactive approach is particularly valuable for equipment such as switchgear, transformers, inverters and structural steel. A delay in any one of these components can affect the sequencing of an entire project. By identifying potential bottlenecks earlier, HPS can better coordinate procurement with engineering, permitting and construction schedules and help reduce the risk of costly project delays.
The Hawaiian Reality: Freight and Permitting
While mainland developers grapple with interstate trucking, Hawaiʻi faces unique, highly localized logistical hurdles that can extend typical residential and commercial project timelines by 8-10 weeks.
Hawaiʻi relies entirely on ocean freight. Under the Jones Act all goods shipped between U.S ports must be transported on ships that are built, owned and operated by U.S. citizens. This severely limits the vessel pool, driving up cost to the islands. Most solar equipment sourced from Asia must first land at a mainland West Coast port to clear customs and undergo tariff processing before being shipped back across the Pacific to Hawaiʻi. This double handling adds weeks to project schedules as well as cost. Once a shipment arrives on Oʻahu, equipment destined for neighbor islands must be transferred to inter-island barges. Any delay in Honolulu ripples across the entire state.
For HPS, managing these realities means incorporating freight and delivery schedules into project planning well before construction begins. Our experience developing and constructing solar projects throughout Hawaiʻi provides an important understanding of how ocean freight, inter-island transportation and local delivery requirements can affect construction schedules. Accounting for these constraints early helps HPS and our partners establish more realistic timelines and anticipate potential disruptions before materials are needed on-site.
Hawaiʻi’s county-level permitting offices, particularly Honolulu’s Department of Planning and Permitting, have historically experienced significant backlogs. Although initiatives such as “Solar Quick Permits” on Oʻahu have streamlined simple rooftop systems (residential), commercial and industrial projects still face rigorous and time-consuming review cycles.
Ground-mounted systems on agricultural land face intensive state and county scrutiny. In Hawaiʻi, protecting agricultural land and cultural sites is paramount, requiring multi-year environmental and community reviews and Special Use Permits.
Hawaiian Electric Company (HECO) operates isolated island grids on Oʻahu, Maui and Big Island with exceptionally high penetrations of solar energy. To protect grid stability, HECO requires rigorous interconnection studies and advanced equipment such as smart inverters and battery energy storage integration. Getting final Permission to Operate can take several months after physical construction is complete.
These requirements make local experience increasingly valuable. HPS has worked within Hawaiʻi’s permitting, utility and construction environment for years, giving the company an understanding of the steps that need to occur before a project can reach construction and, ultimately, operation. By coordinating procurement, permitting, interconnection and construction planning rather than treating each as an isolated step, HPS can help its development partners identify potential schedule conflicts earlier in the process.
Turning Industry Challenges Into Momentum
These hurdles affect developer schedules and margins, creating negative impacts on project economics that can ultimately result in project cancellations. Today’s solar market requires developers and contractors to balance regulatory requirements, tax incentives, tariffs, procurement, logistics, permitting and utility interconnection simultaneously.
For HPS, however, there is a positive aspect to the current environment. Many projects have already been in development for months and, in some cases, years. That existing groundwork puts HPS and our development partners in a stronger position to respond as federal and state deadlines tighten and supply-chain pressures increase.
Recent changes have also created a greater sense of urgency among HPS’ development partners. Developers now have additional incentive to advance projects sooner in order to secure material pricing, minimize exposure to future tariffs and supply-chain disruptions and preserve available tax incentives. Projects that might previously have progressed at a more measured pace now face clear financial reasons to move forward.
HPS is responding by working closely with our partners to identify long-lead materials, monitor procurement and pricing, anticipate freight and logistical constraints and align construction schedules with evolving regulatory requirements. Our experience in Hawaiʻi also allows the company to factor local permitting, interconnection and transportation challenges into project planning from the outset.
As a result, HPS has secured a strong pipeline of projects extending over the next two to three years. At a time when uncertainty is causing some solar developments to slow or become economically unfeasible, that pipeline provides an important measure of stability. Successful solar development increasingly depends on anticipating regulatory, procurement and logistical challenges before they become costly delays. HPS established development partnerships, local market experience and proactive approach to project planning position the company to navigate this increasingly complex environment, a silver lining during an otherwise challenging period for the solar industry.