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Senate Passes Tax Extenders Deal That Includes Extension of Renewable Energy Incentives

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 [...]

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House Approves Energy Tax Extenders

Last week, the U.S. House of Representatives (House) overwhelming approved a $42 billion tax extenders bill.  The bill, H.R. 5771, includes extensions of nearly $10 billion in energy tax incentives through the end of 2014.  But by failing to extend the tax incentives beyond the end of this year, the House bill has been criticized by industry advocates that wanted stability and predictability as to the future availability of the incentives.

The bill extends the New Market Tax Credit in Section 45D, the Production Tax Credit in Section 45, the Research Credit in Section 41, the bonus depreciation rules in Section 168(k), the Energy Property Credit for individuals in Section 25C, the Second Generation Biofuel Producer Credit in Section 40(a)(4), the incentives for biodiesel and renewable diesel in Section 40A, the New Energy Efficient Home Credit in Section 45L, the Energy Efficient Commercial Buildings Deduction in Section 179D, the special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities in Section 451 and the excise tax credits relating to certain fuels in Section 6427.

By extending the Production Tax Credit (PTC) and other incentives retroactively only through the end of this year, the House bill provides little reassurance to companies in the industry who are looking to invest in renewable energy products, given the long lead time required to get projects off the ground.  With only three weeks left before the PTC expires again, the extension is unlikely to provide much incentive to invest in new renewables projects.  The House Ways and Means Committee expects the extension to cost around $9.6 billion over the next 10 years.  But industry insiders argue that the expiration of the PTC last year and the resulting uncertainty has caused a drop off in new renewables (non-solar) projects, and have called for a multi-year extension that would phase out the PTC over three years.  This kind of phase-out generated bipartisan support in a Senate bill last month, but the bill ultimately died after the White House threatened to veto it over other matters.  Although some in the Senate are still pushing for a two-year extenders bill, it is currently expected that the extenders package will ultimately be passed in the form adopted by the House.

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