On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020 which contains a package of "tax extenders" extending several renewable energy tax credits including the production tax credit for qualifying wind projects.
On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020 (H.R.1865) containing the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Extenders Bill) which includes a package of specific extensions to existing tax credits and other tax incentives. The Extenders Bill extends:
On a limited basis, other energy tax incentives that were set to expire.
Retroactively some credits that had already expired.
The Extenders Bill does not contain any expansions or extensions of credits and incentives for solar energy, energy storage or electric vehicles.
Production Tax Credit
Under Section 45 of the Internal Revenue Code, wind project developers are entitled to an inflation adjusted PTC for each kilowatt hour of electricity produced from a qualified energy resource at a qualified facility and sold to an unrelated person during the ten-year period beginning on the date the qualified facility is originally placed in service (26 U.S.C §45(a)). The PTC has expired and been renewed multiple times, with the most recent renewal taking place in 2015 under the 2016 Consolidated Appropriations Act. Under this act, developers of eligible wind facilities could receive:
100% of the PTC if construction began before January 1, 2017.
80% of the PTC if construction began before January 1, 2018.
60% of the PTC if construction began before January 1, 2019.
40% of the PTC if construction began before January 1, 2020.
No PTC was available for projects that start construction after January 1, 2020.
Under the Extenders Bill, the PTC is extended for an additional one year and qualifying wind projects that began construction after December 31, 2019 are eligible to receive 60% of the PTC. No PTC is available for projects that start construction after January 1, 2021.
Production Tax Credit for Other Renewable Projects
The Extenders Bill also retroactively reinstates the full amount of the PTC through 2020 for the following projects:
Before the Extenders Bill, those technologies were generally only eligible for the PTC to the extent construction began before January 1, 2018 and were placed in service before January 1, 2020 (other than certain closed-loop biomass and qualified hydropower technologies, which needed to be placed in service before January 1, 2018). Under the Extenders Bill, the place in service is extended to the end of 2020.
The Extenders Bill does not grant new ITC or extend any ITC target dates for energy storage projects.
Other Relevant Credits
Among the energy tax items in the Extenders Bill were extensions for several tax credits that had previously expired. These energy tax items include:
The credits for biodiesel and renewable diesel which are extended to December 31, 2022.
Alternative vehicle fuels – excise tax credits which are extended to December 31, 2020.
Refueling/recharging property credits which are extended to December 31, 2020.
Investment Tax Credit
The Extenders Bill also extends the investment tax credit (ITC) in lieu of the PTC for wind facilities where construction begins in 2020. Those projects would be eligible for 60% of the ITC (mirroring the phase down to 40% then up again to 60% for the PTC). Otherwise, the extenders package does not affect the ITC.
Since the Extenders Bill extended the PTC for only one year (and at the last minute), it may result in uncertainty for the industry. The step up in the amount of the credit available will also require careful analysis and planning. Under the Extenders Bill, developers who started construction in 2019 to qualify for the PTC may receive a lower credit (40%) than developers who start construction during 2020 (60%). Developers may need to t closely examine IRS regulations and guidance on what it means to start construction and manage their construction schedule and the "continuous efforts" requirement to see if they can qualify for 60% of the PTC versus 40%.
The Tax Extenders Bill does not include an extension or expansion of the ITC for solar energy. It also does not include any expansion of the ITC for energy storage technology, offshore wind facilities, or electric vehicle credits.
While the PTC and ITC have been instrumental to the growth of US wind and solar projects, the lack of regulatory certainty regarding the availability of federal tax credits has caused project developers and their investors to develop alternative methods and new structures to make these projects financeable and profitable.
For more information on the PTC and renewable energy generally, see Practice Notes: