New Stimulus Brings Another Extension for Renewable Energy Tax Credits
The second round of COVID-19 stimulus that was just signed into law includes extensions to renewable energy tax credits for solar, wind and other renewable energy projects as well as a standalone investment tax credit (ITC) for offshore wind. The key renewable energy provisions of the bill are summarized below. The bill is a major victory to the renewable energy industry even though it did not include a stand-alone tax credit for energy storage or a direct-pay option for the ITC.
|Solar ITC||Two-year extension at 26 percent, so projects that start construction in 2020, 2021 or 2022 are eligible for 26 percent ITC. The ITC steps down to 22 percent for projects that start construction in 2023 and 10 percent for projects that start construction in 2024 or later. Projects must be placed in service before 2026 to qualify for more than a 10 percent ITC.
A taxpayer begins construction on a project when physical work of a significant nature has begun, or when at least 5 percent of the total project costs have been incurred. The project owner must complete the project within four years or demonstrate that work on the project has been continuous once construction begins. We expect the IRS to update its start of construction guidance as a result of the tax credit extensions.
|Wind production tax credit (PTC)||One-year 60 percent PTC extension for projects that start construction in 2021. The PTC sunsets at the end of 2021.
Alternatively, the taxpayer can claim an 18 percent ITC in lieu of the PTC for projects that start construction before January 1, 2022. The ITC is taken on the percentage of the cost of eligible property included in the project.
|New ITC for offshore wind||30 percent ITC with no phase-down for projects that start construction before 2026. Projects must be located in U.S. inland navigable waters or coastal waters.|
|PTCs for biomass, geothermal, landfill gas, municipal solid waste, hydroelectric and ocean energy projects||One-year extension for projects that start construction in 2021.|
|ITCs for fuel cell, fiber-optic solar and small wind facilities||26 percent ITC for projects that start construction in 2021 and 2022. Projects that start construction in 2023 are eligible for 22 percent ITC. No ITC for projects that start construction after 2023 or are placed in service after 2025.|
|Waste energy recovery property (50 MWs or less)||26 percent ITC for projects that start construction in 2021 and 2022. Projects that start construction in 2023 are eligible for 22 percent ITC. No ITC for projects that start construction after 2023 or are not placed in service before 2026.|
|Carbon capture tax credit under Section 45Q||Two-year extension to qualify for credit. Construction must start before 2026.|