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What COVID-19 Means For Renewable Projects And Financing

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.

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IRS Releases Initial Section 45Q Carbon Sequestration Credit Guidance

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.

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Court Rules That Wind Farm Did Not Provide Proof of Development Fee to Receive 1603 Cash Grant

On June 20, 2019, the United States Court of Federal Claims published its long-awaited opinion in California Ridge Wind Energy, LLC v. United StatesNo. 14-250 C. The opinion addressed how taxpayers engaging in related party transactions may appropriately determine the cost basis with respect to a wind energy project under the Internal Revenue Code (IRC). Central to the case was whether the taxpayer was allowed to include a $50 million development fee paid by a project entity to a related developer in the cost basis of a wind project for purposes of calculating the cash grant under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (Section 1603). Section 1603 allowed taxpayers to take a cash grant in lieu of the production tax credit of up to 30% of the eligible cost basis of a wind project. The eligible cost basis under Section 1603 is determined in the same manner as under Section 45 for purposes of the investment tax credit (ITC). The Justice Department disagreed with the taxpayer’s position that the development fee should be included in the cost basis for calculating the Section 1603 cash grant. The Justice Department argued that the development fee was a “sham.”

The court agreed, and held for the government. The court’s opinion focused on the taxpayer’s failure to provide evidence that the payment of the development fee had “economic substance.” Indeed, the court was troubled that none of the taxpayer’s witnesses could explain what was actually done to earn the $50 million development fee. Other than a three‑page development agreement and the taxpayer’s bank statements identifying the wire transfers for payment of the development fee, which started and ended with the same entity, the court found that the taxpayer provided no other factual evidence to support the payment of the fee. Indeed, the court pointed to the taxpayer’s trial testimony, which the court found lacked the specificity needed to support the development fee. Because the taxpayer failed to carry its burden of proof and persuasion, the court concluded that the taxpayer was not entitled to include the $50 million development fee in the cost basis of the wind project for purposes of computing the Section 1603 cash grant.

Importantly, the court did not, however, rule that a development fee paid to a related party is not permitted to be included in the cost basis of a facility for purposes of determining the Section 1603 cash grant. Instead, the court simply ruled that the taxpayer failed to provide it with sufficient proof that in substance the taxpayer performed development services for which a development fee is appropriately considered part of the cost basis of a facility for purposes of determining the Section 1603 cash grant.

Practice Point: In court, the plaintiff has the burden of proving its entitlement to the relief sought. Before filing a case, it’s best to make sure that you have all of the evidence you need to prove your case. Without substantial and [...]

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Trump Administration Imposes Tariffs on Foreign Solar

Yesterday, the US Trade Representative announced that President Trump approved recommendations to impose a safeguard tariff on imported solar cells and modules under Section 201 of the Trade Act of 1974. The tariff will be in effect for the next four years at the following rates:

This tariff is the result of petitions filed in May 2017 by two US solar cell manufacturers at the (ITC under Section 201 of the Trade Act of 1974. The petitions alleged that a global imbalance in supply and demand in solar cells and modules and a surge of cheap imports caused serious injury to the domestic solar manufacturing industry. In September, the ITC found injury to the US solar equipment manufacturing industry and, in October, released its recommendations to the White House to impose tariffs. The President’s final decision was in line with the ITC’s recommendations.The first 2.5 gigawatts (GW) of imported solar cells will be exempt from the safeguard tariff in each of those four years. According to the International Trade Commission (ITC), the United States imported approximately 12.8 GW of solar cells in 2016, which was expected to grow in 2017.

Supporters hope the tariff will encourage increased domestic solar manufacturing. Reports are circulating that a solar manufacturer is considering opening a new module factory in Florida. However, critics of the tariff like the Solar Energy Industries Association (SEIA) say that the tariff will result in a loss of 23,000 domestic jobs this year, including many in manufacturing, and will result in the delay or cancellation of billions of dollars in solar investments. The U.S. solar energy industry currently employs 260,000 Americans in jobs ranging from installation to manufacturing racking systems and inverters. The industry created 1 out of every 50 new US jobs in 2016. According to SEIA, only 2,000 people in the United States are employed manufacturing solar cells and panels.

The tariff is also expected to increase solar module costs, with early estimates predicting an increase of 10 to 12 cents per watt based on current US import prices of 35 to 40 cents per watt.

The US Trade Representative’s press release and fact sheet took clear aim at China, singling it out as a major cause of injury to the domestic solar manufacturing industry: “Today, China dominates the global supply chain and, by its own admission, is looking to increase its capacity to account for 70 percent of total planned global capacity expansions announced in the first half of 2017.” The US Trade Representative also stated that it will “engage in discussions among interested parties that could lead to positive resolution of the separate antidumping and countervailing duty measures currently imposed on Chinese solar products and U.S. polysilicon.” Despite the aggressive rhetoric, the tariff will not be limited to Chinese imports.

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The Senate’s New Base Erosion Tax: Highlights for Renewable Energy

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.

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Initial Republican Tax Reform Proposal Includes Tax Cuts and Changes to Energy Credits

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.

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Analysis of Energy and Tax Proposals in the 2018 Budget Proposal

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.

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Extension of Renewable Energy Tax Incentives

On December 18, 2015, President Barack Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029) (the Act), which included welcomed extensions to a number of energy tax incentives. The legislation includes multi-year extensions of the Section 45 Production Tax Credit (the PTC) and the Section 48 Investment Tax Credit (the ITC) for wind and solar projects tempered by a gradual phase out of the total credit available.

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International Trade Actions Complicate Global Market For Renewable Energy Businesses, Particularly Solar Sector

by David J. Levine and Pamela D. Walther

The flurry of international trade disputes in the renewable energy field, particularly the solar sector, is complicating the business landscape for the renewable energy industry.  In their BloombergBNA analysis piece, McDermott international trade lawyers David Levine and Pamela Walther provide a detailed account of renewable energy trade actions in the domestic and international arenas.  As the long-term implications of these disputes raise serious strategic issues for providers, consumers and governments, those involved are well-advised to monitor developments and take an active role in proceedings to protect their interests.

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Commerce Department Announces New Duties on Chinese Solar Panel Imports

by Raymond Paretzky and William Friedman

The U.S. Department of Commerce (Commerce) published its final affirmative antidumping (AD) and countervailing duty (CVD) determinations on October 17, 2012, imposing new duties on Chinese solar panel producers and exporters.  Commerce determined that Chinese producers/exporters sold solar photovoltaic cells in the United States at dumping margins ranging from 18.32 to 249.96 percent, and that Chinese producers/exporters have received countervailable subsidies of 14.78 to 15.97 percent. 

Dumping occurs when a foreign company sells a product into the United States at less than fair value prices.  Countervailable subsidization occurs when a governmental authority directly or indirectly conveys benefits that support production by specific companies or sectors, or are contingent upon export performance or the use of domestic goods over imported goods.

As a result of its determinations, Commerce will instruct U.S. Customs and Border Protection to collect cash deposits or bonds equal to these margins on imports.  The cash deposit rates, however, will be reduced by 10.54 percent, the export subsidy rate.  Additionally, Commerce found that “critical circumstances” exist in the CVD investigation for all companies and in the AD investigation for all companies except one, Wuxi Suntech.  As a result, provisional duty deposits, which are normally collected as of the date of publication of Commerce’s preliminary determinations, will be collected 90 days prior to that date (except in the case of AD duty deposits for Wuxi Suntech).

For the early duty deposit collection to be maintained and the AD/CVD duties to stand, the International Trade Commission (ITC) must make an affirmative final determination that dumped and subsidized imports of solar cells from China “materially injure, or threaten material injury to,” the domestic solar panel industry.  If the ITC makes a negative final injury determination, the investigations will be terminated and the duties will not be imposed.  The ITC has tentatively scheduled its final determination vote for November 7, 2012.




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