Clean tech energy sector gets a congressional boostDecember 23, 2015
On December 18, 2015 the President signed into law H.R. 2029—the “Consolidated Appropriations Act, 2016” which provides fiscal year 2016 full year appropriations through September 30, 2016 for all agencies. This Appropriations Act includes some very significant tax and funding provisions for qualified energy projects.
The omnibus spending portion of the Act contains a number of clean energy funding provisions. They include the following:
||Funding level in fiscal year 2016
|Energy Efficiency and Renewable Energy
|Advanced Research Projects Agency-Energy (ARPA-E)
(+4% over FY15)
|Loan Guarantee Program
(0% change from FY15)
|Office of Science (National Labs, research, etc.)
(+6% over FY15)
|Defense Production Act Fund-Advanced Biofuels
*Source: The PEW Charitable Trusts @pewtrusts.org (December 18, 2015)
There are some very significant tax provisions relating to qualified renewable energy projects. In particular, the text of Divisions P and Q of the Act have specific final adjustments to the production and investment tax credits for renewable energy facilities. These adjustments include the following:
- Wind and PTC. The production tax credit will be available for wind facilities the construction of which begins before January 1, 2020 (this is a five-year extension). However, for facilities beginning construction in 2017 the credit is reduced by 20%, for facilities beginning construction in 2018 the credit is reduced by 40%, and for facilities beginning construction in 2019 the credit is reduced by 60%.
- PTC for other renewables. The production tax credit will be available for biomass, geothermal, landfill gas, trash, hydropower and marine facilities the construction of which begins before January 1, 2017 (this is a two-year extension).
- ITC election. The election to take the investment tax credit in lieu of the production tax credit will be available for biomass, geothermal, landfill gas, trash, hydropower and marine facilities the construction of which begins before January 1, 2017 (this is a two-year extension). The election to take the investment tax credit in lieu of the production tax credit will be available for wind facilities the construction of which begins before January 1, 2020 (this is a five-year extension), but that credit will be subject to a 20% reduction for facilities beginning construction in 2017, a 40% reduction for facilities beginning construction in 2018, and a 60% reduction for facilities beginning construction in 2019.
- ITC for solar. The investment tax credit for solar photovoltaic or thermal facilities will be available for facilities that begin construction before January 1, 2022. This is both (i) a five-year extension, and (ii) a shift from a “placed in service” standard to a “beginning of construction” standard, effectively further extending the credit. However, this credit is subject to a phaseout; for facilities beginning construction in 2020 the credit is reduced from 30% to 26%, and for facilities beginning construction in 2021 the credit is reduced to 22%, but in each case only if the facility is placed in service before January 1, 2024. If a facility beginning construction before 2022 is placed in service in 2024 or later, the credit is reduced to the 10% level that is permanently available for solar projects.
These new tax provisions and extensions for qualified renewable energy projects will provide a significant boost for construction and development of these projects. As technology evolves and costs are further reduced, these new extended tax incentives will provide an additional boost for renewable energy in Wisconsin as well as other parts of the country in general, even in those states that do not have favorable renewable energy policies.
As mentioned in this summary, the Act provides for a “wind-down” of the credits for wind and solar. It is also important to be aware that this may be the last extension of credits provided by Congress given the technological advancements that are reducing cost for such alternative energy projects. Based upon these factors, it is important to initiate timely development action for wind and solar projects during the time period affording full credits before the wind-downs.
Please contact any member of the Environment & Energy Strategies team for further information on these important tax and funding developments.