Introduction of Renewable Energy Parity Act of 2013 Extending 30 Percent ITC to Solar Projects Beginning Construction Prior to 2017

by Akin Gump Strauss Hauer & Feld LLP
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Mike Thompson (D-CA) introduced the Renewable Energy Parity Act of 2013 in the House of Representatives on June 25. The bill is co-sponsored by 18 other Democratic House members. The text of the bill, H.R. 2502, is available here.

The bill’s title, Renewable Energy Parity Act, may appear to the uninitiated to refer to parity between renewables and fossil fuels.1 However, the reference to “parity” refers to providing the solar 30 percent investment tax credit (ITC) with a comparable effective date standard as was enacted earlier this year for the wind production tax credit (PTC).2 The desired standard is beginning of construction, rather than placed in service.

As the solar ITC has far more favorable treatment in the Internal Revenue Code than the wind PTC, it is surprising for the title of a bill benefiting solar to use the term “parity” in an unstated reference to wind. Specifically, the wind PTC, absent an extension, only applies to projects that begin construction this year.  In contrast, under current law the 30 percent solar ITC applies to projects placed in service by the end of 2016.  Further, after that a 10 percent ITC applies to any solar project regardless of its placed in service date. Also, wind projects that use leasing structures are ineligible for the PTC, while the ITC rules encourage leasing.  Finally, the ITC is completely exempted from the alternative minimum tax (AMT) preference, while PTCs only avoid AMT’s painful clutch for the first four years of a project’s operation. Thus, Rep. Thompson would have needed to draft several additional pages to meet the aspiration of his bill’s title of creating tax “parity” between renewable energy technologies.

The title aside, H.R. 2502 makes good policy sense. First, if enacted, it will result in more solar projects being built.3 This is good for the environment and generates jobs in America for installers, servicers and sales people. Second, projects often run into snags with permits, transmission or interconnection arrangements or weather that unexpectedly delay their completion. Such projects should not be denied a 30 percent ITC merely because such an event precluded their completion by the end of 2016.

So I support and hope the Renewable Energy Parity Act of 2013 is enacted, but if I was given only one legislative wish it would be for the availability of PTCs for wind projects that begin construction in 2014 or later.



1 See, e.g., Sen. Coons’s (D-DE) Master Limited Partnerships Parity Act that would extend the benefit of a single layer of taxation regime that is available to fossil fuel investments to renewable energy investments.  That bill is discussed in our blog posts available here [Aug. 1 blog post] and [Mar. 12 blog post].

2 In Notice 2013-29, the IRS published rules as to what it means to “begin construction” in 2013.  The notice provides planning opportunities but also creates foot fault risk.  Our client alerts discussing the notice are available here [April 16 client alert] and [April 26 client alert].

3 The bill also applies to fuel cell, microturbine, combined heat and power and small wind projects and projects that generate thermal energy from heat from the ground or ground water.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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