Congress Extends PTC and ITC Renewable Energy Tax Credits

Perkins Coie

The renewable energy industry, particularly the wind and solar energy sectors, have been hopeful that the U.S. Congress would act this year to extend certain tax credits that project developers and related sectors, such as construction contractors and equipment manufacturers, are dependent on to finance their projects.  Congress passed legislation at the end of last week, which President Obama signed into law on December 18, 2015, that extends these tax credits as part of an omnibus spending package.

With this law, the U.S. wind and solar energy industries receive a five-year extension of the Production Tax Credit (PTC) under Section 45 of the Internal Revenue Code (IRC) and the Investment Tax Credit (ITC) under Section 48 of the IRC, respectively.  However, the structure of the PTC and ITC programs are expected to change, as discussed below. 

Wind Energy:  If a wind energy facility project commences construction before 2020, it will be eligible for the current PTC, which, prior to adjustment for inflation for 2015, is $0.023/kWh.  However, the PTC will phase out for construction that commences after 2016.  Specifically, for projects that commence construction in 2017, 2018 and 2019, the PTC will be reduced by 20%, 40% and 60%, respectively. 

Utility Solar Energy:  If a solar energy facilities project commences construction before 2022, then it will be eligible for the 30% ITC.  However, the ITC will phase out for construction that begins after 2019.  Specifically, for construction that commences in 2020, the project will qualify for a 26% credit and for construction that commences in 2021, the project will qualify for a 22% credit.  Further, if a project commences construction before 2022, but is not placed in service before 2024, the project will qualify for a 10% credit, which will be applicable to projects commencing construction after 2021 generally.

Residential Solar Energy:  The 30% tax credit for residential solar property also has been extended for five years but, similar to utility solar, will be subject to phase out for property placed in service, as distinguished from commencement of construction, after 2019.  Specifically, for property placed in service in 2020 and 2021, the residential solar tax credit will be reduced to 26% and 22%, respectively.

Eligibility for the PTC also has been extended to the following types of renewable energy facilities, provided that construction commences before 2017:

  • Closed loop biomass
  • Open loop biomass
  • Geothermal
  • Landfill gas
  • Municipal solid waste
  • Qualified Hydropower
  • Marine and hydrokinetic renewable energy

Observers, including BloombergBusiness, have called the tax credits an unprecedented boost to the industry, with an estimated $38 billion of investment in solar and $35 billion in wind anticipated through 2021.

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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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