On Dec. 17, 2019, the U.S. House of Representatives reached an agreement on a year-end tax package, which would extend or renew certain expired or expiring tax credits and other tax incentives. Some tax credits that had expired at the end of 2017 are being retroactively extended. Of importance in the Taxpayer Certainty and Disaster Tax Relief Act of 2019 is a one-year extension to the production tax credit (PTC) for wind projects under Section 45 of the Internal Revenue Code.
Currently, the PTC for wind projects is set to expire at the end of 2019 for projects that have not yet begun construction. The one-year extension would provide a 60 percent PTC for wind projects that begin construction in 2020. If passed, the PTC schedule would apply as follows:
- Projects that began construction before the end of 2016 – 100 percent
- Projects that began construction in 2017 – 80 percent
- Projects that began construction in 2018 – 60 percent
- Projects that began construction in 2019 – 40 percent
- Projects that begin construction in 2020 – 60 percent
The IRS “begin construction” rules would still apply, including the four-year continuity safe harbor to place a project in service after construction has begun.
The tax extenders bill would also revive PTCs for certain orphaned technologies that lost qualification at the end of 2017 if those projects had not already begun construction. The following electrical facilities would once again qualify for PTCs so long as they “begin construction” before the end of 2020:
- Closed-loop biomass
- Open-loop biomass
- Geothermal energy
- Landfill gas
- Municipal solid waste
- Incremental hydropower
- Marine and hydrokinetic renewable energy
The tax extender legislation will likely become part of an amendment to the government funding bill, which must pass Congress by Dec. 20, 2019. It is likely the funding bill will pass the Senate on or before that date, and President Trump has indicated that he is poised to sign the funding bill when it reaches his desk. Friday, Dec. 20, is the deadline for passing a funding bill to avert government shutdown.
McGuireWoods lawyers are experienced in energy, project finance and tax equity structures.
