The IRS yesterday released anticipated guidance extending the placed-in-service deadline for the Investment Tax Credit (ITC) and Production Tax Credit (PTC). Under Notice 2020-41, the “Continuity Safe Harbor” was extended to five years for any project that otherwise began construction in 2016 or 2017.

As background, the applicable credit rate for the ITC and PTC turns on when a project begins construction. The IRS has issued a series of Notices providing guidance on when a project begins construction for these purposes. Under the guidance, taxpayers can either satisfy the “Five Percent Safe Harbor” or “Physical Work Test”. In addition to requiring certain activities in the year construction begins, both methods include a second prong, requiring certain continuous work until the project is placed in service. The IRS has previously provided the Continuity Safe Harbor, under which a project will be treated as having met the second prong so long as it is placed in service by the end of the fourth year after which construction begins on the project. If the project cannot meet the Continuity Safe Harbor, the taxpayer must satisfy the continuity requirement through facts and circumstances.

In the case of the Five Percent Safe Harbor (which requires continuous efforts), demonstrating facts and circumstances is time-intensive and challenging, and is inherently uncertain. In the case of the Physical Work Test (which requires continuous physical work), demonstrating facts and circumstances is likely impossible across four years, leaving many of these projects economically unviable in the absence of IRS relief.

The new Notice extends the Continuity Safe Harbor by one year – from four years to five years – for any projects that began construction in 2016 or 2017. This is welcomed relief for projects that have experienced delays related to COVID-19. The relief is particularly helpful in that it is a blanket extension for any projects that otherwise began construction in 2016 or 2017, without requiring taxpayers prove that delays were specifically related to COVID-19. If the extension were only available for COVID-19 delays, the relief would have had limited value, as taxpayers would have simply gone from trying to demonstrate facts and circumstances relating to continuous work, to having to demonstrate facts and circumstances relating to the nature of the delays. This blanket relief was particularly important, given the cascading impact of COVID-19 through the economy and the renewables industry – which experienced delays relating to supply chains, and also relating to financing and regulatory issues, among others. The extension of the safe harbor provides needed economic certainty for all of these projects.

Notice 2020-41 also provides relief for projects that intended to satisfy the Five Percent Safe Harbor in late 2019 but where equipment has been delayed. Under the existing guidance, costs are taken into account in 2019 under the Five Percent Safe Harbor if they are paid before December 31, 2019 and the property or services are delivered within 105 days of payment (the “105 Day Rule”).  Under the new guidance, if a taxpayer made payment on or after September 16, 2019 and the property or services are provided by October 15, 2020, the taxpayer will be deemed to satisfy the 105 Day Rule. Accordingly, the payments made in 2019 can be taken into account for purposes of the Five Percent Safe Harbor. Like the Continuity Safe Harbor extension, the relief applies without regard to the reason for the delay.

Notice 2020-41 provides much needed economic certainty for the renewables industry, as stakeholders have scrambled in recent months to understand the broad impacts of COVID-19 on projects. The relief should not be seen as controversial, given that it is effectively putting taxpayers and the IRS in the economic positions they expected to be in had COVID-19 never happened.

The Notice is available here.

President Trump’s May 1, 2020 Executive Order prohibiting certain transactions involving bulk-power system electric equipment developed, manufactured or supplied by a foreign adversary could have far-reaching implications for both the renewable and conventional power industries. It has also raised a high level of uncertainty and risk while the industry awaits the actual implementation of the Executive Order. This interim period, as well as the breadth of the Executive Order, raises key questions and concerns for sponsors and developers of energy projects, construction contractors and energy project investors. Read our latest On the Subject for more in-depth information.

Yesterday, after the Department of Energy’s stakeholder call, we hosted a webinar that addressed important considerations as to how the Executive Order may impact your business. In particular, our hosts provided a step-by-step framework on navigating the Executive Order based on their prior US Government experience in this area and current “boots on the ground” in Washington, DC on this issue.

Continue Reading Five Takeaways: Navigating President Trump’s Executive Order on US Bulk Power System Electric Equipment

On Thursday May 14, McDermott was joined by Gregory Wetstone, president and chief executive officer of the American Council on Renewable Energy (ACORE) to discuss the latest market updates on the severe disruption and uncertainty brought on the renewables industry by COVID-19.

Five takeaways from this week’s webinar below:

  1. There is no clear insight yet into what a congressional relief package regarding renewable energy might look like, despite the fact that congress is discussing its fifth COVID-19-related response bill.
  2. Even though the outlook was already pessimistic, clean energy job loss has been worse than expected; there has been a loss of 94,000 jobs in the renewable sector between March and April and 600,000 additional unemployment claims across the clean energy sector.
  3. Renewables have a great potential to continue to be part of the nation’s economic recovery; two of the fastest growing job categories in the nation have been wind turbine technicians and solar panel installer.
  4. Senior Department of Energy officials have reassured that the recent bulk power executive order is a continuation of existing policies regarding transmission corridors and is not targeted at renewables, which are recognized as valuable for national security. See the Office of Electricity’s Q&A and contact email for a response to President Trump’s signed Executive Order, “Securing the United States Bulk-Power System” and join McDermott on May 21 for a legal analysis of the EO.
  5. The commerce department is undertaking an investigation which could lead to the imposition of additional tariffs, particularly in regards to transformers; the timing for these tariffs (if enacted) is likely right before the election.

Listen to the full webinar.

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On Thursday, May 7, McDermott Partners Ed Zaelke and Carl Fleming were joined by Christen Blum, head of the Renewable & Analytics Advisory practices at Edison Energy, to hear her thoughts on the current effects of COVID-19 on the corporate power purchase agreement (PPA) market.

Below are six takeaways from this week’s webinar:

  1. Despite COVID-19, there is still a strong appetite for corporate renewable procurement: market leaders (such as tech, pharma, and food and beverage companies) have been less impacted by COVID-19 and remain interested in renewable procurement. On the other hand, companies that have been hit the hardest by COVID-19 (such as services and hospitality businesses) have traditionally demonstrated limited interest in renewables; but industrial companies have seen the largest effect of COVID-19—they remain interested in renewables, but are delaying their procurement as they focus on their core business.
  2. Although the trend for buyer-friendly PPA terms remains strong, the market has seen a recent uptick in prices over 2019 such that they no longer remain as buyer-friendly as they have been in the recent past, but the impact of COVID-19 on these prices remains to be seen.
  3. In order to maintain more competitive PPA prices, developers are employing a number of price mitigation strategies, including price collars, upside sharing and developers bearing more merchant risk.
  4. Most corporate buyers are less time-sensitive than more traditional buyers; as such near-term wind projects are often losing out on opportunities to cheaper solar projects which are coming online later.
  5. Force majeure terms have become a major emphasis in PPA negotiations now.
  6. The best advice for developers is to treat their relationships with corporate partners as a long-term partnership and to act accordingly in negotiations.

Listen to the full webinar here.

To begin receiving Energy updates, including invitations to the Renewables Roundtable and Q&A Webinar Series, please click here.

To access past webinars, please click here. 

President Trump’s May 1, 2020, Executive Order prohibiting certain transactions involving bulk-power system electric equipment developed, manufactured or supplied by a foreign adversary could have far-reaching implications for both the renewable and conventional power industries. The breadth of the Executive Order raises key questions and concerns for sponsors and developers of energy projects, construction contractors and energy project investors.

Access the full article.

On Thursday, April 30, McDermott was joined by Brett Kerr, vice president of external affairs at Calpine, Drew Murphy, senior vice president of strategy and corporate development at Edison International, and Andrew Campbell, director of regulatory support and planning at NiSource who shared their perspectives on how investor-owned utilities and independent power producers are managing the COVID-19 crisis.

Below are six takeaways from this week’s webinar:

  1. As businesses go back to work, it is essential that they carefully plan for a new normal, including consideration of travel restrictions, acquisition of personal protective equipment, maintaining social distancing of employees and contractors, and compliance with new rules and regulations.
  2. Utilities have been and will continue to optimize their maintenance schedules to balance safety and reliability concerns considering the essential nature of electricity and risks potentially associated with deferred maintenance.
  3. Although it is too soon to see the permanent effects of COVID-19, there has been a five to seven percent reduction in weather-normalized demand: this includes both an increase in residential demand and a larger reduction in commercial and industrial demand.
  4. Utilities are watching cash flow more closely as more customers are either not paying or deferring payment, and as commercial and industrial customers reduce demand. In California, where revenues are decoupled from electricity demand, this should not affect total revenues, but may lead to reallocation of rates across customer classes.
  5. A number of large commercial and industrial corporate customers with renewable and sustainability commitments are talking about placing these commitments on hold or rethinking them as recessionary impacts become clearer.
  6. Drops in load and low natural gas prices could detrimentally impact the economics of new renewable projects seeking financing and prevent the projects from moving forward. However, as renewables often dominate interconnection queues, if some of these projects do not come online, prices could actually remain constant.

Listen to the full webinar.

To begin receiving Energy updates, including invitations to the Renewables Roundtable and Q&A Webinar Series, please click here.

To access past webinars, please click here. 

The Coronavirus (COVID-19) pandemic has severely disrupted the wind market’s supply chain and labor resources, resulting in significant project delay risk. This legal and commercial checklist is a comprehensive practitioner’s guide to help sponsors and borrowers review their tax equity, financing, offtake and material project documents to ensure compliance with obligations, prevent unnecessary default triggers, and manage relationships with banks, tax equity and other stakeholders.

Access the full article.

The world is facing a situation unprecedented in modern times with the global spread and impact of COVID-19. Its rapid spread has brought severe disruption and uncertainty to everyone’s personal lives, as well as to the wind, solar and storage industry supply chains, the renewable project financing market, and global markets at large.

While the speed and complexity of the virus make it impossible to know the full effects it will ultimately have on the world, what follows is what we know today about the impact of COVID-19 on the supply chains for solar, energy storage and wind developers, as well as the project finance market.

Access the full article.

The California Energy Commission (CEC) has approved the first community solar program as a means of complying with California’s solar mandate. Specifically, on February 20, 2020, following a three-hour hearing with many speakers on both sides of the issue, the CEC unanimously approved the Sacramento Municipal Utility District’s (SMUD) proposal to allow homebuilders to use a community solar alternative to the California solar mandate, which went into effect on January 1, 2020. SMUD’s community solar plan is called Neighborhood SolarShares.

While the intention of the California solar mandate may have been to implement solar on every roof, the 2019 Building Efficiency Standards allowed for certain exceptions to these requirements. One such exception allowed for builders to build community solar projects, so long as these projects received approval from each of the CEC and the local utility. The 2019 standards provided the following six requirements for Commissioners to consider when approving a community solar program:

  1. Enforcement – The solar resource must exist at the time the home is permitted and the applicant must work in coordination with the building department for review and enforcement.
  2. Energy Performance – The energy savings must match that of rooftop solar.
  3. Dedicated Energy Savings – The generated solar must be dedicated to the building.
  4. Durability – Proposed facilities must be operational for 20 years.
  5. Additionality – Savings cannot be counted to meet other utility renewable requirements.
  6. Accountability and Recordkeeping – Applicant must keep records and make them accessible for 20 years.

In approval, Commissioner Karen Douglas described the SMUD program and the 2019 standards, “If it meets the criteria, we shall approve it.” Much of the CEC debate concerned consumer affordability, with proponents of the program arguing community solar would make home prices more affordable, but opponents arguing it would lead to higher energy bills. Commissioner J. Andrew McAllister explained that all parties were seemingly in agreement about the need to decarbonize, “Even though we are fighting about this issue, we’re on the same team.”

SMUD itself is currently building a 160-megawatt project at the site of the decommissioned Rancho Seco Nuclear Generating Station as well as working to develop a 15-megawatt array in conjunction with a developer.

With SMUD’s Neighborhood SolarShares program approved, other California utilities now have a roadmap in designing similar programs to take to the CEC for approval. Although some opponents of the decision claim it will reduce the adoption of rooftop solar, the CEC decision should provide a further encouragement for community solar developers in California, which to-date have had often struggled to conclude successful developments. Additionally, this provides one more tool for California as it works to achieve its 100% clean energy goals.

Treasury and the IRS released initial guidance on the amended Section 45Q carbon oxide sequestration credit on February 19, 2020. Notice 2020-12 and Revenue Procedure 2020-12 provide guidance relating to the beginning of construction and tax equity partnership allocations.

This is the first Section 45Q guidance since Treasury issued a request for comments in Notice 2019-32 last year. That Notice sought input on a number of issues raised by amendments to Section 45Q that expanded the scope and enhanced the amount of the Section 45Q credit pursuant to the Bipartisan Budget Act of 2018, P.L. 115-123. The new guidance in Notice 2020-12 and Revenue Procedure 2020-12 is effective March 9, 2020.

Continue Reading IRS Releases Initial Section 45Q Carbon Sequestration Credit Guidance