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.
On September 29, 2017, the Illinois Power Agency (IPA) released its Long-Term Renewable Resources Procurement Plan (Plan) to implement renewable energy goals set forth in Illinois’s Future Energy Jobs Act, which went into effect on June 1. Together, the new legislation and the Plan, among other things, make significant modifications to Illinois’s renewable portfolio standard (RPS) goal of 25 percent of retail electricity sales sourced from renewable energy by 2025. The Plan sets forth procurement programs designed to meet the state’s annual RPS targets until 2030 and will be updated at least every two years. These changes significantly expand renewable energy development opportunities in Illinois—by some estimates, leading to the addition of approximately 1,300 megawatts (MW) of new wind and nearly 3,000 MW of new solar capacity by 2030.
Expanding the Illinois RPS
While maintaining the same 25 percent renewable energy sourcing goal, the Future Energy Jobs Act functionally increases the state’s RPS target because Illinois’s RPS standard previously applied only to customers buying power through a utility’s default service, not customers taking supply through alternative retail suppliers or through hourly pricing. According to the IPA, in recent years, only 30-50 percent of potentially eligible retail customer load actually received default supply services, while competitive class customers (including larger commercial and industrial customers, which represent approximately half of total load) had no default supply option. Given this transition, meeting Illinois’s RPS goal of 13 percent of retail electric sales in the state sourced from renewable energy for the 2017–2018 delivery year will require the IPA to procure on behalf of the state’s electric utilities an additional 7.5 million renewable energy credits (RECs), which will gradually increase to a forecasted procurement of 31.5 million RECs for the 2030–2031 delivery year. One REC represents 1 megawatt hour (MWh) of generation produced by an “eligible renewable resource.” Eligible resources include wind, solar, thermal energy, biodiesel, anaerobic digestion, biomass, tree waste, landfill gas and some hydropower. Many other states, including California and Massachusetts, utilize RECs to demonstrate compliance with the state’s RPS program. Continue Reading Illinois Renewable Resources Procurement Plan Aims to Boost Renewable Energy Development
The New York Public Service Commission’s (PSC) Clean Energy Standard (CES), adopted in August, includes a new emissions credit—the ZEC. The ZEC, or zero-emissions credit, is the first emissions credit created exclusively for nuclear power.
The ZEC is the result of a highly politicized effort to support New York’s struggling nuclear power plants. New York’s four nuclear plants account for 31 percent of the state’s total electric generation mix. According to the PSC, “losing the carbon-free attributes of this generation before the development of new renewable resources between now and 2030 would undoubtedly result in significantly increased air emissions due to heavier reliance on existing fossil-fueled plants or the construction of new gas plants to replace the supplanted energy.” The ZEC Program is intended to keep the state’s nuclear plants open until 2029 and provide an emissions-free bridge to renewable energy.
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.
With the recent extension of the federal income tax credits available for renewable energy projects, practitioners and industry participants have raised questions as to how the “begun construction” rules will apply under these new regimes. The new regimes refer to the dates on which construction on projects began for purposes of determining qualification for the credits and also provide for a phaseout or reduction in the available credits over time. (For more information on these extensions, see our previous article on the extensions.)
Industry participants expect that the Internal Revenue Service will soon issue guidance detailing when a project will be determined to have “begun construction” and when continuous construction efforts are required. It is expected that this guidance will be similar to the beginning of construction guidance summarized here for wind projects. However, in light of the different considerations for different technologies and the reduction in the credit amount over time, which differs from the prior credit for wind that expired in its entirety, a number of questions have been raised by industry participants. It is hoped that some of these questions will be answered by any guidance that is issued with respect to the credit extensions. Some of these questions include:
- Will the beginning of construction tests be the same as they currently are for wind (e., a physical work of a significant nature test and a 5 percent safe harbor test)?
- Will continuous construction efforts be required under the new regimes?
- What is the consequence of failing to maintain a program of continuous construction? Will the project still be eligible for a reduced credit, and how will that credit amount be determined?
- Will there be a placed in service safe harbor? The wind guidance had provided that continuous construction efforts would be considered maintained so long as projects were placed in service prior to a specific date. That date was two years after the end of the year in which the project was required to be placed in service. Most industry participants believe this safe harbor will be extended to apply to wind projects beginning construction through 2016.
- If there is a placed in service “safe harbor,” will it apply to all technologies in the same manner? That is, will the safe harbor period be the same for all renewable technologies?
- Will the guidance address and provide examples of “physical work of a significant nature” for solar projects?
- How would the physical work and safe harbor tests apply in the context of residential or commercial and industrial solar projects?
- In the solar context, what will be considered a single “facility” for purposes of the beginning of construction tests?
We will provide additional updates as we get more information, so please stay tuned.
The introduction of retrospective tariff cuts to photovoltaic (PV) plants and the abolition of the Robin Tax by the Italian Constitutional Court, combined with simplified regulation and taxation of new forms of debt financing, have turned the attention of foreign investors from PV assets to other renewable energy sources (RES) assets.
Italian plants producing energy from RES other than PV have been supported by public incentive schemes since 1999, and have not been hit by the tariff cuts introduced by legislative decree 91/2014 (the so-called “spalma incentivi”). It is, however, easy for foreign investors to become confused by the complex set of rules governing the incentives granted to RES plants.
This Special Report provides a complete and updated overview on the Italian regulation of incentives given to RES plants. It will help investors find their way through the jungle of rules and identify and understand the incentives that apply to a potential investment.
President Obama’s recently released budget proposal for the 2016 fiscal year repeats many of his past energy-related tax proposals, including a permanent extension of the renewable energy production tax credit and a provision making it refundable. Making the production tax credit permanent and refundable signals the administration’s continued strong support for renewable energy. This Special Report offers a summary of the key energy-related tax provisions contained in the budget proposal and discussed further in the U.S. Department of the Treasury’s general explanation of the proposal.
Last week, the New Jersey Board of Public Utilities (BPU) approved an agreement with the New Jersey Economic Development Authority (EDA) to establish and operate an Energy Resilience Bank in the state. The BPU approved a plan to direct over $200 million in federal aid to the bank. The Energy Resilience Bank (ERB) will focus on the development of distributed energy resources at critical facilities throughout the state, aiming to minimize the impacts of widespread power outages like the one Hurricane Sandy caused.
The ERB will be focused on providing capital, both low-interest loans and grants, to critical facilities that offer the greatest resilience benefits, including water and wastewater treatment plants and hospitals. Subsequent funding will be directed toward other critical facilities, such as transportation, emergency response and schools that can function as shelters in case of emergency. While other states, including New York and Connecticut, have recently launched green banks, the ERB will be the first to focus on resiliency.
The launch of the ERB followed a National Renewable Energy Laboratory study that found that distributed generation and microgrids are integral to energy resiliency. Distributed generation and microgrids have the potential to ‘island’ electricity at critical facilities with on-site generation, retaining power during bulk-power system blackouts. These technologies provide additional benefits such as increasing efficiency by cutting transmission losses and incentivizing clean energy deployment.
New York launched its Green Bank in December with an initial capitalization of $210 million. The New York model focuses on private-sector investment proposals and aims to support financing for local energy efficiency and clean-energy projects that larger financial institutions typically overlook. New York’s Green Bank envisions support such as credit enhancements, co-investing with the private sector in a loan fund for clean energy, loan warehousing/short-term project aggregation and similar arrangements. Connecticut launched the first green bank in the country in 2012, and, according to their 2013 report, roughly ten dollars was invested by private sources for every one dollar of ratepayer funds invested. It remains to be seen whether New Jersey will similarly leverage private investment in its model.