Sourcing Renewables  -  December 22, 2020

Congress extends renewable energy tax credits

Congress extended Dec. 21 the deadlines to start construction on projects that qualify for federal tax credits, prompting a scramble by project developers to amend arrangements put in place to start such construction in 2020.

While projects that qualify for credits need to be completed in four years once construction starts, a last-minute bill that went through the federal legislature extends the deadlines for solar, wind, fuel cell, geothermal, biomass, incremental hydroelectric and other renewable energy projects. The full list of extensions includes:

• Solar deadlines are extended by two years and projects that start in 2020, 2021 or 2022 will qualify for a 26% investment tax credit. Projects starting in 2023 get a 22% tax credit but projects after 2025 qualify for only 10%.
• Onshore wind deadlines are extended an extra year and are now at the end of 2021. Projects starting construction in either 2020 or 2021 will qualify for production tax credits at 60% of the full rate on the electricity output for 10 years or an 18% investment tax credit on the project cost in the year the project is put in service. Production tax credits at 60% of the full rate are currently $15 per MWh.
• Offshore wind projects will qualify for a 30% investment tax credit if construction started after 2016 until 2025. Offshore wind developers will not have the option to claim production tax credits on the electricity output – instead of an investment tax credit – on any project on which construction starts after 2021. The PTCs for a project on which construction starts in 2021 or earlier are the PTCs under the phase-out schedule for wind projects on land.
• Other renewable energy projects that qualified for production tax credits if construction began by the end of 2020 now have a deadline of the end of 2021. There is no phase-down amount like there is for wind and solar projects. The full rate for geothermal and closed-loop biomass projects is currently $25 a MWh, while the full rate for other types of biomass, incremental hydroelectric, landfill gas, waste-to-energy and marine and hydrokinetic projects is currently $13 a MWh.

Construction technically “begins” once at least 5% of the total project cost is incurred or “physical work of a significant nature” on-site or at a factory starts. Many developers are now exploring options to push back payment, title transfer or delivery of equipment into next year to take advantage of the new rules.

The new bill also authorizes a 30% investment tax credit for offshore wind projects that start construction as late as 2025 and a similar incentive for new power plants of up to 50 MW that generate electricity using waste heat from buildings and other equipment.

Full details of the bill are available from Norton Rose Fulbright.