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Why 2030 is the New 2050 after the Leaders Climate Summit and What President Biden’s Accelerated Transition to a Sustainable Economy Means for Renewables Developers, Investors and Corporates

2030 is the new 2050 as US President Joe Biden has officially set a new goal for fighting climate change over the next decade in the United States. At the Leaders Climate Summit (the Summit) on Earth Day, he announced that America would aim to cut its greenhouse gas emissions at least 50% below its 2005 levels by 2030. If successful, this transition would lead to a very different America and would affect virtually every corner of the nation’s economy, including the way Americans get to work, the sources from which we heat and cool our homes, the manner in which we operate our factories, the business models driving our corporations and the economic factors driving our banking and investment industries. The effectiveness of this transition lies in the administration’s ability to pull on two historically powerful levers: Tax policy and infrastructure funding. However, tax policy will call upon multiple sublevers, such as increased tax rates, expanded tax credits, refundability, carbon capture, offshore wind, storage, transmission and infrastructure investment. All of this will be bolstered by the American corporate sector’s insatiable appetite for environmental, sustainability and governance (ESG) goal investment.

QUICK TAKEAWAYS

There were six key announcements at the Summit for renewables developers, investors and corporates to take note:

  1. The United States’ commitment to reduce its greenhouse gas emissions by 50% – 52% below its 2005 emissions levels by 2030
  2. The United States’ economy to reach net-zero emissions by no later than 2050
  3. The United States to double the annual climate-related financing it provides to developing countries by 2024
  4. The United States to spend $15 billion to install 500,000 electric vehicle charging stations along roads, parking lots and apartment buildings
  5. A national goal to cut the price of solar and battery cell prices in half
  6. A national goal to reduce the cost of hydrogen energy by 80%

President Biden’s goals are ambitious. It is clear from the history of renewable incentives in the United States as well as current developments that moving forward, the green agenda will predominately rely on two primary levers being pulled at the federal level: Tax policy and infrastructure funding. The federal tax levers mentioned above will not be pulled in a vacuum. Instead, they will be pulled in the midst of a tectonic shift among individual investors that now demand that institutional investors and corporations begin to create and meet ESG goals as individual customers are beginning to take a corporation’s climate goals and footprint into account when making purchasing decisions.

As a result, we discuss the following areas in greater detail below:

  1. Tax policy
    1. increased tax rates
    2. expanded tax credits
    3. refundability
    4. carbon capture
    5. offshore wind
    6. storage
    7. transmission
  2. Infrastructure bill
  3. ESG environment

DEEPER DIVE: BREAKING DOWN EACH LEVER AS WELL AS ITS OPPORTUNITIES AND CHALLENGES

  1. Tax Policy: The consistent message from the Biden Administration, at the Summit and elsewhere, makes clear that tax policy will likely play a significant role in the administration’s ambitious climate agenda. At [...]

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IRS Provides Relief for Offshore Wind and Federal Land Projects

New guidance from the Internal Revenue Service (IRS) extends the Continuity Safe Harbor to 10 years for both offshore wind projects and projects on federal land. The relatively quick release of this guidance following enactment of the offshore wind investment tax credit (ITC) last week suggests strong support for these projects by Congress, the US Department of the Treasury and IRS.

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COVID-19 Stimulus Bill Includes Key Renewable Energy Tax Credits

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.

Access the full article here.




Six Takeaways from Wind Turbine Vendor Update: A Conversation with GE Renewable Energy


McDermott hosted GE Renewable Energy North America Services Sales Leader Ben Stafford, Commercial Director of Onshore Wind for the North Region Rob Bienick and Commercial Director of Onshore Wind for the West Region Matt Lynch on July 30 for a discussion about COVID-19’s impact to turbine supply chain and construction, the effects of the Production Tax Credit (PTC) safe harbor extension, and how GE is preparing for 2021 and beyond.

Below are key takeaways from this week’s webinar.

1. COVID-19 continues to impact both supply chain and construction – requiring more communication with customers, subcontractors, and within GE, but products continue to be manufactured, delivered, installed, and maintained.

2. The large wind project pipeline in the United States (even prior to the PTC extension) shows that there remains great optimism for the wind industry, despite the current PTC phase-out schedule.

3. The repowering market for wind is growing, providing many benefits including renewed PTCs, increased energy yield, increased reliability, lowered maintenance cost, and optimization of existing site infrastructure over greenfield development.

4. The trend toward longer blades continues, but logistics remain the largest hurdle to wider deployment.

5. Service agreements are trending towards longer terms with greater flexibility to meet customer needs, including opportunities to align interests with revenue and risk sharing terms.

6. GE is available to support both new and repowering projects with available safe-harbor equipment.

To begin receiving Energy updates, including invitations to the webinar series, please click here.

Access past webinars in this series.




IRS Extends Deadline for ITC and PTC Projects

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 [...]

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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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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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DOE Says Wind Power Creates Lots of Jobs!

According to the Department of Energy (DOE) renewable energy wind installations had explosive growth through 2016, and added approximately 32,000 jobs since 2015, to a total of 102,000!

In the Wind Technologies Market Report, DOE says the Production Tax Credit (PTC) is directly responsible for the expansion. Congress, however, is phasing out the PTC, which DOE believes will lead to a slowing of the wind energy industry. The PTC is incrementally being phased out over a five year period, and ends completely in 2020. Read here for more information.




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