Treasury Planning to Extend PTC and ITC Deadlines for Renewables
The Office of Legislative Affairs at the Department of Treasury sent a short letter on May 7 to Senator Grassley, the Chairman of the Senate Committee on Finance, that it intends to extend the Continuity Safe Harbor under the existing Treasury guidance for the Production Tax Credit (PTC) and Investment Tax Credit (ITC). The letter comes in response to a letter to Treasury Secretary Mnuchin late last month from a bi-partisan group of senators urging him to extend the Continuity Safe Harbor from four years to five years for projects that started construction in 2016 or 2017 in order to preserve jobs and investments caused by the COVID-19 pandemic, which has disrupted supply chains, construction operations and permitting timelines, delaying projects otherwise on track to be in operation by the end of 2020.
The senators stated in their letter that while existing IRS guidance provides certain exceptions for specified setbacks in construction, these exceptions do not anticipate nor fully capture the wide-ranging interruptions now faced by developers. They requested a temporary extension of the Continuity Safe Harbor of five years to address the unforeseen interruptions developers are experiencing due to COVID-19 and provide the certainty businesses need to move forward with existing projects.
Under current law, the PTC is available at a rate of 100 percent for wind projects that began construction before 2017, and then phases down to 80 percent for projects that began construction during 2017, 60 percent for projects that began construction during 2018, 40 percent for projects that began construction during 2019, and then back up to 60 percent for projects that begin construction in 2020. No PTC is available for projects that begin construction in 2021. The 30 percent solar ITC phased down to 26 percent for projects that start construction this year and then will be reduced again to 22 percent next year before it drops down to 10 percent going forward. Solar projects qualifying for a tax credit above 10 percent must be placed in service before 2024.
A taxpayer is treated as having begun construction by starting physical work of a significant nature or incurring 5 percent or more of the total cost of the project. The taxpayer must then place the project in service by the end of the calendar year that is no more than four calendar years after the calendar year during which construction of the project began (the “Continuity Safe Harbor”), or demonstrate based on the facts and circumstances that it made continuous efforts to complete construction throughout the entire period before the project was placed in service (the “Continuous Efforts Test”).
The Treasury guidance allows the taxpayer to toll the Continuity Safe Harbor to account for delays to mitigate national security concerns raised by the Department of Defense involving the construction or interconnection of the project. It also permits taxpayers to show that there were certain excusable disruptions beyond its control (e.g., severe weather, natural disasters, work stoppages, supply shortages, and permitting and interconnection delays) that prevented it from meeting the Continuous Efforts Test. Generally, tax equity investors require developers to place projects in service within the Continuity Safe Harbor rather than rely on the Continuous Efforts Test.
The new guidance will primarily benefit wind projects, which have longer construction timelines. No further details on Treasury’s plans have been provided, but we expect that it will be issued very soon.