The US stimulus bill passed into law yesterday includes several key extensions and additions to the tax credits available for renewable energy. The bill had been agreed to by Congress early last week and was signed into law by the president last night.
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:
- 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.
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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.
The US Senate today passed a package of tax extenders as part of the year-end appropriations act that the US House of Representatives passed on December 17, 2019. President Trump is expected to sign the legislation before the end of the day tomorrow to avoid a government shutdown. The package includes a one-year extension of the production tax credit (PTC) under section 45 for wind and other technologies. It also includes limited extension of other energy tax incentives that were set to expire and a retroactive extension for some credits that had already expired in 2018. Most of the credits will now expire at the end of 2020, setting up the prospect of a broader tax extenders deal during lame duck session after the 2020 election. The bill also included a one-year extension through 2020 of the new markets tax credit under Section 45D at $5 billion.
Extension of Energy Tax Credits
Many energy tax credits and incentives are scheduled to expire or begin to phase out at the end of 2019 or have already expired. The Further Consolidated Appropriations Act will extend the expiration date to the end of 2020 for many credits. The package did not include an extension or expansion of the Investment Tax Credit (ITC), disappointing the solar industry. The extenders package also did not include the proposed expansion of the ITC for energy storage technology or the extension of energy credits for offshore wind facilities.
Production Tax Credit
The PTC provides a credit for each kilowatt hour of energy production for qualified renewable energy facilities. The PTC expired for non-wind technologies at the end of 2017, while a reduced credit of 40% was available for wind facilities through the end of 2019, expiring for years 2020 and beyond. As we reported previously in House Passes PTC, NMTC Extension, under the tax extenders package, projects that begin construction in year 2019 are eligible for the 40% credit, and projects that begin construction in 2020 will be eligible for a 60% credit. This potentially leaves taxpayers in a frustrating position to the extent they already took steps to begin construction on a wind project in 2019 to take advantage of the 40% credit in anticipation of its expiration at the end of 2019. Taxpayers seeking the increased 60% PTC for wind projects will need careful planning to ensure any work done in 2019 does not attach to the 2020 project, thus dropping the credit to 40%.
Additionally, the full PTC would be retroactively revived and extended through 2020 for:
- Closed loop biomass
- Open loop biomass
- Geothermal plants
- Landfill gas (municipal solid waste)
- Trash (municipal solid waste)
- Qualified hydropower
- Marine and hydrokinetic renewable energy facilities
Under current law, those technologies are generally only eligible for the PTC to the extent construction began before 2018 (other than certain closed-loop biomass and qualified hydropower technologies, which must be placed in service before 2018). Under the extenders package, those dates would all be extended out to the end [...]
On December 2, 2017, the Senate approved its version of the Tax Cuts and Jobs Act. The Senate Bill includes the base erosion and anti-abuse tax, a new tax intended to apply to companies that significantly reduce their US tax liability by making cross-border payments to affiliates. Given its potential to disrupt the financing of renewable energy projects, taxpayers in the renewable energy sector have been paying close attention to its developments.
Changes to the energy credits proposed in the Tax Cuts and Jobs Act could impact the eligibility of renewable energy projects that had been relying on the guidance previously issued by the Internal Revenue Service.
President Trump released his budget proposal for the 2018 FY on May 23, 2017, expanding on the budget blueprint he released in March. The budget proposal and blueprint reiterate the President’s tax reform proposals to lower the business tax rate and to eliminate special interest tax breaks. They also provide for significant changes in energy policy including: restarting the Yucca Mountain nuclear waste repository, reinstating collection of the Nuclear Waste Fund fee and eliminating DOE research and development programs.
As discussed in our post on April 7, US Congress extended the Production Tax Credit (PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (ITC) under IRC Section 48 in December 2015, but failed to include extensions for certain types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Some congressional leaders had stated that the omission was an oversight that would be addressed in 2016.
In March, President Barack Obama signed an extension of certain Federal Aviation Administration (FAA) programs and revenue provisions through July 15, 2016. This legislation was apparently crafted with an intentionally short timeframe to allow inclusion of the omitted PTC and ITC provisions in long-term FAA reauthorization legislation. However, Senate Finance Committee members have indicated that the long-term FAA legislation will not include energy tax incentives. According to Tax Analysts, Senate Finance Committee member John Thune (R-SD) recently indicated that the extenders will not make it into the FAA reauthorization bill. Senator Richard Burr (R-NC) also said that the most likely vehicle for energy tax incentives would be an end-of-the-year tax bill.
Short-Term Reauthorization of FAA Programs Potentially Paves the Way For Omitted Energy Credit Extenders
As discussed in our post on March 16, the Congressional extension of the Production Tax Credit (PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (ITC) under IRC Section 48 in December 2015 failed to include extensions for certain types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Congressional leaders have stated that the omission was an oversight that would be addressed in 2016.
On March 30, 2016, President Barack Obama signed into law the Airway and Airport Extension Act of 2016 (H.R. 4721) (the Act), which extends certain Federal Aviation Administration (FAA) programs and revenue provisions only through July 15, 2016. Expiring in less than four months, the FAA extension was apparently crafted with an intentionally short timeframe to allow inclusion of the omitted PTC and ITC provisions in long-term FAA reauthorization legislation that will likely follow this summer. Accordingly, while the Act does not directly address the energy tax provisions omitted from last year’s extenders package, experts hope that it paves the way to addressing the omission in a few months.
Senator Ron Wyden (D-WY) has said that he hopes to introduce a long-term FAA bill addressing the omitted energy tax credit extenders after the Senate returns this week. House Ways and Means Committee Chair Kevin Brady (R-TX) has expressed opposition to attaching energy credit tax extenders to the FAA reauthorization legislation. As developments occur, we will update this blog.
Renewable Energy Industry Seeks Additional Energy Credit Clarifications
On December 18, 2015, President Barack Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029) (the Act). The Act includes multi-year extensions of the Production Tax Credit (the PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (the ITC) under IRC Section 48 for wind and solar projects—both of which are gradually phased out. The Act, however, did not extend the ITC for other types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Read further discussion of the Act’s extension of renewable energy tax incentives. (more…)