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.
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.
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.
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.
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 to address the tax rate hikes and expiring tax incentives to avert the “fiscal cliff.” President Obama signed the legislation into law on January 2, 2013. The legislation included important provisions to businesses, including extending the production tax credit for wind energy facilities through 2013 and requiring that a qualified facility begin construction (rather than be placed in service) before January 1, 2014, to claim the credit.
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The wind industry is pushing for an extension of the renewable energy production tax credit (PTC), which is currently scheduled to expire at the end of the year. The PTC has helped spur investment in wind by providing a tax credit of 2.2 cents per kilowatt hour of wind energy produced. It has been successful in growing the industry, but new wind projects have slowed this year to due uncertainty over the PTC’s extension. Historically, when Congress declined to extend the PTC, new wind projects fall drastically.
Despite the political battles surrounding the tax credit, the Senate Finance Committee voted 19-5 to extend the PTC as part of a proposed tax extender package. The bill, called the Family and Business Tax Cut Certainty Act of 2012, would extend the wind production tax credit for one year, through December 31, 2013.
The bill also contains a change to the qualification requirements for wind facilities, which has received little attention despite its important implications. Previously, wind facilities had to be placed in service before they could qualify for the PTC. Under the proposed extension, facilities will be eligible for the tax credit so long as construction begins before January 1, 2014.
The new qualification requirement would extend the impact of the PTC beyond 2013 by providing an incentive to begin construction during the year regardless of when the facility becomes operational. The change would also provide certainty to new wind projects. Under the old qualification requirement, a wind facility had to meet an operational deadline on the back end of their construction schedule. The new qualification requirement front ends the relevant date, providing greater certainty that the facility will be able to take advantage of the tax credit. The new qualification requirements have the potential to reinvigorate the wind industry.
Extending the PTC has implications for job growth, a critical issue in November’s election. One recent study by the Natural Resources Defense Council predicts that extending the PTC could create 17,000 new jobs, while letting it expire could cost 37,000. Despite the impacts on job creation, the House and Senate will likely consider the tax legislation, including the extension of the PTC for wind facilities, after the November election.