Unlocking the Investment Tax Credit: A Strategic Guide for Utilities in 2026

As utilities evaluate investments in clean energy technologies, the Investment Tax Credit (ITC) remains one of the most impactful tools available to improve energy resource project economics. However, recent policy changes have made the ITC not just an opportunity, but a strategic decision point that requires early planning and disciplined execution. Sourcing and labor requirements have become a core piece of the ITC given changes both in 2022 and since 2025 which introduced new compliance risks that can be complex to manage.

For utilities, the question is no longer whether to leverage the ITC, it is how to successfully capture it without introducing risk.

Why the ITC Matters

The Inflation Reduction Act (IRA) significantly expanded the ITC, reinforcing the ITC role as a core driver of clean energy investment. The updated framework allows public utilities to recover a meaningful portion of project costs upfront, improving affordability, and enabling more projects to move forward. Although the One Big Beautiful Bill Act (OBBBA) impacted solar and wind ITC substantially, many technologies still afforded potential benefits from ITC.

Importantly, the ITC now applies to Qualified Technologies such as standalone energy storage systems, giving utilities greater flexibility in how they design and deploy resources. Other valuable generation resources also have Qualified Technologies status including geothermal, nuclear, hydrogen, and carbon captured enabled generation.

What this means for electric utilities:

• Project portfolios can be optimized for reliability using Qualified Technologies
• Energy storage projects are viable on a standalone basis
• The financial case for grid modernization becomes significantly stronger

A Narrow Window: Why Timing Is Critical

Despite its benefits, the ITC is highly sensitive to project timing and execution strategy.

Utilities must carefully navigate key milestones such as:

• When construction begins
• How quickly projects progress
• When systems are placed into service

For many projects, establishing construction by key deadlines enables access to safe harbor provisions, allowing additional time to complete projects while retaining favorable tax treatment.

However, those benefits depend on maintaining a credible and well-documented path to completion.

The Shift from Finance to Execution

Prior to 2022 the ITC was primarily managed to secure tax equity financing as tax credits did not have a domestic content bonus structure available. Also, Public power now has access to the ITC but they are required to have domestic content to capture any ITC value (no bonus available). Post OBBB, there are new limitations on the components sourced from Foreign Entities of Concern (FEOC) which creates a complex accounting compliance process given that the limits are not evenly applied across the entire system that is procured. Today, ITC compliance has become an execution risk because of the rules related to that extends into procurement, engineering, and project management. Formerly, the ITC compliance process was focused on meeting construction activity deadlines rather than the introduced compliance with content ratios and prevailing wages.

Why this shift matters:

• The ITC now requires defensible documentation, not just financial modeling
• Supply chain decisions directly impact eligibility
• Incomplete or inconsistent records can undermine the entire credit position

In practical terms, this means ITC strategy must be embedded into how projects are delivered, not addressed after the fact.

The Importance of Documentation and Transparency

One of the most important lessons for utilities is that ITC success depends on maintaining a clear and complete audit trail.

This includes:

• Procurement records and equipment tracking
• Construction progress and schedule updates
• Alignment between contracted equipment and installed systems

The goal is to ensure that, at the end of the project, the utility can clearly demonstrate that the system placed into service matches the basis used to claim the credit.

Supply Chain Decisions Now Affect Financial Outcomes

The IRA introduced new considerations around domestic content and sourcing, increasing the importance of supply chain strategy. Specifically, electric utilities must now evaluate:

• Where equipment is manufactured
• How components are sourced
• Whether vendor documentation supports compliance claims

These decisions can directly impact:

• Eligibility for Domestic Content bonus
• Overall project cost
• Risk exposure during audits

Early Coordination Is a Competitive Advantage

Successfully capturing ITC benefits requires coordination across multiple stakeholders, including:

• Utility leadership and project sponsors
• Engineering and procurement teams
• Tax advisors and external consultants

Projects that engage these groups early tend to:

• Identify compliance risks sooner
• Avoid costly redesigns or delays
• Move through certification more efficiently

Turning ITC Into a Strategic Asset

For utilities, the ITC is more than a tax incentive; it is a strategic lever for advancing grid investments. Utilities that proactively align their development approach with ITC requirements can:

• Accelerate deployment of energy storage and other Qualified Technologies
• Reduce overall project costs
• Improve long-term ratepayer outcomes
• Strengthen resilience and reliability investments

For readers seeking a deeper understanding of the topics introduced in this article, GDS has developed a comprehensive white paper that expands on the key considerations outlined here. The full whitepaper provides detailed guidance on ITC timing requirements, supply chain and domestic content accounting, and practical approaches to managing the ITC compliance process from procurement through project closeout. These publications are designed to equip utilities with technical and process-driven insights that GDS applies when supporting clients in an Owner’s Engineer role, helping ensure projects are structured, documented, and executed to maximize ITC value while minimizing compliance risk.