Renewables Tax Extenders John Marciano, Sam Kamyans and Sam Guthrie, in Washington, D.C.

Congress is working on a tax extenders package that contains a number of renewable energy extensions. In short, the package includes a two year extension for the solar ITC at 26%, a one-year extension of the 60% PTC for onshore wind, a new 30% ITC for projects that begin construction prior to 2026, and a two year extension for starting construction for carbon capture and sequestration projects which are eligible for a 12-year PTC.

Solar ITC

Rather than phasing down to 22% after 2020, the solar ITC would continue on at 26% for projects that start construction in 2021 and 2022. The ITC would ramp down to 22% for projects that start construction in 2023 and 10% thereafter. All projects would have to be placed in service by the end of 2025 to qualify for a credit above 10%.

The bill would not affect ITC rates for 2019 and 2020. Projects that start construction in 2019 and 2020 would remain eligible for an ITC at a 30% or 26% rate, respectively, but they would have to be placed in service by the end of 2025, or the ITC rate would decrease to 10%.

However, any project that is not placed in serviced by the end of the fourth year after the year in which construction starts would have to show that work/efforts proceeded continuously from the year construction started. Thus, practically speaking, projects that begin construction in 2019 or 2020 should be placed in service by the end of 2023 or 2024, respectively.

The bill would also extend the nonbusiness residential solar credit (for homeowner owned systems) for two years (at 26% for 2021 and 2022). There is no safe harboring available for the nonbusiness residential credit.

Offshore Wind

Project developers often have requested a special start of construction deadline for offshore wind projects because their construction and permitting timeline is unusually long. Under this draft legislation, offshore wind projects would qualify for a 30% ITC as long as the projects start construction before 2026. This 30% ITC for offshore wind is subject to a cliff, presumably going to 0% for projects that start construction on or after January 1, 2026.

The legislation does not include a statutory deadline to place offshore projects in service, but, assuming the IRS applies the wind PTC rules, developers should finish within four years to avoid having to show that work was continuous.

Onshore Wind

Poised to phase out entirely after 2020, wind farms that start construction in 2021 would be eligible for 60% PTCs (over ten years), consistent with current law for projects that started construction in 2020. The option to convert the credit into an ITC would be preserved at 18%.

Carbon Capture and Sequestration ("CCS") - 45Q

CCS projects, eligible for a 12-year PTC under Code section 45Q, will be provided a two-year extension such that projects that begin construction before January 1, 2026 are eligible for the PTC.

Other Technologies

CHP, small wind, microturbine and fuel cell projects also would receive ITC extensions with different phasedown rules.

Fuel cell and small wind projects would receive a 26% ITC if they start construction by the end of 2022 and 22% if they start by the end of 2023, in both cases as long as they are placed in service by the end of 2025. 

CHP and microturbine projects would qualify for 10% if they start construction by the end of 2023.

Each of biomass, geothermal, landfill gas to power, trash to power, hydropower, marine hydrokinetic projects would receive a one-year PTC extension. So, projects starting construction in 2021 would receive the full PTC available for the technology at issue and the alternative option of claiming a 30% ITC.

The bill would also add a new ITC for equipment that generates electricity from waste heat from buildings and equipment (the capacity cannot be more than 50 mWs). Construction must start before 2024, and would phase down in line with fuel cell ITCs.

What the Bill Would Not Do

The bill does not clarify the continuous work/efforts requirement for wind and other technologies.

Specifically, the start of construction rules for PTCs and the ITC require work to proceed continuously until completion and offer vague guidelines as to whether work is continuous. As a safe harbor, taxpayers may show that work proceeded continuously by placing their projects in service within four calendar years after the year in which construction starts. Outside of the safe harbor, however, the guidelines are vague, practically transforming the safe harbor into a requirement.  Project owners that do not comply with this safe harbor must prove continuous efforts to complete the project from inception. Because existing law does not delineate the bounds of adequate proof, tax equity investors generally will not finance projects without the safe harbor or tax insurance.

The draft legislation also does not include a standalone ITC for storage. That exclusion reportedly resulted from disagreement over whether utilities should have to normalize storage to claim the ITC.