After many months of on and off negotiations, including a final push that began the day after the November general election, Congress has passed a new round of COVID-19 relief worth nearly $900 billion. The president is expected to sign the legislation.
Among the items in the bill is the Energy Act of 2020, which incorporates numerous energy provisions, including smart building incentives and weatherization incentives, among others. In addition, several extensions of existing renewable energy incentives and a few new ones are included. (See our alert addressing the bill and tax extenders overall; this alert focuses on summarizing specifics for the renewable energy industry.)
Clean Energy Related Tax Credit Extenders:
- Among other changes, the legislation revises the Investment Tax Credit (ITC) for solar above the previously scheduled 10% rate, by extending the ITC for solar at 26% for projects which begin construction occurs after December 31, 2019 and prior to January 1, 2023, and at 22% for projects that begin construction between January 1, 2023 and January 1, 2024. The phasedown for solar to a permanent 10% will now be postponed until it applies to projects not placed in service before January 1, 2026.
- Establishes a new 30% ITC for waste heat energy from buildings or equipment up to 50 megawatts in capacity, a new technology focus that is different from the feedstock-based technology under the Production Tax Credit (PTC).
- For Offshore Wind, a new 30% ITC will now be made available to offshore wind projects that begin construction prior to January 1, 2026. This applies for projects that began construction in 2017, but with a special transition rule that disallows pre-2017 costs from being includable in ITC tax credit basis.
- The fuel cell, qualified microturbine and combined heat and power ITC was extended for property the construction of which begins before January 1, 2024, from January 1, 2022.
IRS Guidance Related to ITC Begun Construction Matters: Because these changes are statutory date-change related aspects, only these aspects of existing IRS begun construction rules (per IRS Notice 2018-59 et. seq) will change. All other “safe-harbor” or “physical work” rules remain as before. It’s unclear whether the IRS will issue updated notices taking into account the date change.
- Because the PTC at 60% was extended last year, unlike the ITC, the PTC was extended again this year, but for only one more year to the end of 2021.
- For projects beginning construction in 2020 or 2021, the PTC remains 60% of the maximum PTC rate, or, if elected, the 18% ITC. As with the ITC, with the exception of date changes, the IRS begun construction notices issued since 2013 should remain in place. It’s unclear whether the IRS will issue updated notices with the date change.
- For offshore wind, the new rules differ from prior law in that the PTC is not available on projects that begin construction after 2021. Offshore wind projects beginning construction in, or prior to 2021 are subject to prior law, eligible for the phased-down PTC schedule, and can still elect the ITC.
- Non-wind facilities are now eligible for the full, non-phased down PTC if construction is begun in before January 1, 2022 but remain subject to the specific PTC rates assigned to each technology.
NOTE: The new legislation leaves in place a technical glitch for projects that began construction in 2019 and thus only qualify for the 40% PTC under pre-amendment law because they began construction before 2020.
- The new legislation extends the credit under 45Q by two years such that credits are allowed for facilities the construction of which begin before January 1, 2026, and meet other criteria, are allowed a credit.
- In addition, the Energy Bill portion of the larger bill has a host of carbon capture/storage provisions and R&D advances which likely present a host of new cutting-edge opportunities in the effort toward climate change mitigation.
What Did Not Change:
- Despite aggressive lobbying, the much discussed “cash option” or “refundable” ITC/PTC was not a part of the legislation.
- Also not included in the legislation was stand-alone storage, though, as mentioned above, the Energy Bill section of the law does involve storage to a limited extent.
Other Items of Note:
- 45L – The energy efficient homes credit for homebuilders is extended one year to December 31, 2020.
- 179D - The Energy Efficient Commercial Buildings Deduction is made permanent. Note that as before, because this is a deduction, any ITC eligible equipment would have its ITC basis reduced by 179D, resulting in a loss of ITC, so consult your CohnReznick tax advisor before choosing to use the 179D deduction if it involves ITC eligible assets.
- 25D – The personal use energy credit for homeowners installing equipment, including solar and geothermal, among other technologies is also extended, and biomass fuel property is now eligible for this credit. This credit only applies to non-commercial taxpayers.
- Tribal Depreciation – The legislation also includes extension of the fast depreciation for business property on Indian reservations. This does not however modify certain ITC rules concerning tribal use.
In conjunction with recent OCC rules favoring on tax equity, these legislative changes are welcome news to the renewable energy sector and are anticipated to play a significant role in the incoming Biden administration’s Climate Change Policy.
Subject matter expertise
Partner, Renewable Energy Industry and Project Finance and Consulting Practice Leader
CPA, Partner, Project Finance & Consulting
Let’s start a conversation about your company’s strategic goals and vision for the future.
Please fill all required fields*
Please verify your information and check to see if all require fields have been filled in.