ITC, PTC Extensions Capped Busy 2015 for Renewables

Published by Michael Novogradac on Tuesday, February 2, 2016 - 12:00am

For the renewable energy tax credit community, 2015 was a landmark year. While there was plenty of guidance, reports and legislation, the year ended with multi-year, phase-down extensions of both the investment tax credit (ITC) and production tax credit (PTC)–giving the renewable energy industry some long-term stability that’s been lacking for the past several years. That these multi-year, phase-down extensions came despite some stiff opposition, including serious suggestions to provide no further extensions, makes that much more noteworthy.

But there was plenty of other significant news in the 11½ months leading up to the extension of the ITC and PTC. Here are some of the main events of 2015 in renewable energy:

Jan. 13: The Internal Revenue Service (IRS) issues Notice 2015-4, providing performance and quality standards that small wind energy properties (wind turbines with a nameplate capacity of 100 kilowatts or less) must meet to meet quality standards set forth by the American Wind Energy Association or Internal Eletrotechnical Commission–making them eligible for the ITC. The guidance allows small wind turbine manufacturers to certify to the taxpayer that the turbine meets performance and quality standards by either providing a written certification or another way to retain certification for tax record keeping purposes.

Feb. 3: In its proposed budget for fiscal year 2016, the Obama administration proposes to modify and extend the PTC and ITC. For facilities that begin construction in 2016 or later, the proposal would make the PTC permanent and refundable–and solar facilities that qualify for the ITC would be eligible to claim the PTC. The budget proposal would permanently extend the ITC at its 30 percent level and would make permanent the election to claim the ITC in lieu of the PTC for facilities eligible for the PTC.

Feb. 3: IRS issues a notice in which it solicits allocation applications for about $1.3 billion in new clean renewable energy bonds, authorized by the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009. The bond financing comes from funds unused after previous allocations.

March 11: IRS issues an update to beginning of construction for the ITC or PTC. Notice 2015-25 provides that if a facility is placed in service before Jan. 1, 2016, it will be satisfy the continuous construction test for purposes of the physical work test, or the continuous efforts test for the purposes of satisfying the safe harbor. The notice also says that if a taxpayer begins construction on a facility before Jan. 1, 2015, and places it in service before Jan. 1, 2017, it will be considered to satisfy the continuous construction test or continuous efforts test, regardless of the amount of physical work performed or the cost paid or incurred.

April 28: The Government Accountability Office (GAO) issues a report recommending that Congress consider directing the IRS to collect and report project-level data from all taxpayers who claim the ITC and PTC. The report says the total generating capacity that the credits support is unknown because the IRS is not required to collect the information. The GAO said that because of the lack of information, Congress can’t evaluate the credits’ effectiveness.

June 12: The IRS issues Chief Counsel Advice Memorandum 201524024, which says that a partner allocation of ITCs cannot rely on the Rev. Proc. 2007-65 safe harbor. It rules that Rev. Proc. 2007-65 provides a safe harbor only for partners with the wind energy production tax credit (PTC).

July 21: The Senate Finance Committee approves legislation that includes an extension of the PTC for projects that began construction by the end of 2016; an extension of the election to claim the ITC in lieu of the PTC by the end of 2016; an extension of the new energy-efficient home tax credit for eligible homes acquired by the end of 2016; and an extension of the Section 179D energy-efficient commercial and multifamily buildings deduction through the end of 2016.

Aug. 3: The Obama administration releases its Clean Power Plan, which lays out “achievable standards” to reduce carbon dioxide emissions by 32 percent from 2005 levels by 2030. The plan, administered by the Environmental Protection Agency, seeks a 30 percent increase in renewable energy generation by 2030 and includes an incentive program for energy investment in low-income communities. Late in the year, both houses of Congress vote to repeal it, but Obama “pocket vetoes” both bills.

August: The U.S. Department of Energy pairs with the Lawrence Berkeley National Laboratory to release the “2014 Wind Technologies Market Report,” which finds wind power capacity grew 8 percent in 2014, meeting nearly 5 percent of the end-use electricity demand in the nation. The Department of Energy and its Pacific Northwest National Laboratory also issues the “2014 Distributed Wind Market Report,” which focuses on smaller wind-powered projects. The report says the smaller projects had enough installed capacity to power more than 168,000 average American homes.

Sept. 22: Sens. Maria Cantwell, D-Wash., Harry Reid, D-Nev., and Ron Wyden, D-Ore., introduce the American Energy Innovation Act, which would extend the ITC and PTC through the end of 2017, then replace them with a new, technology-neutral 30 percent ITC and PTC at 2.3 cents per KWh that would phase out when greenhouse gas emission targets are achieved. The legislation is among more than a dozen renewable energy tax credit bills introduced during the year–some to extend and some to eliminate the credits. Bills include the PTC Elimination Act, the Energy Freedom and Economic Prosperity Act, the Power Efficiency and Resiliency (POWER) Act, the Prioritizing Energy-Efficient Renewables (PEER) Act of 2015, the Master Limited Partnerships Parity Act, the New Energy for America Act and a series of single-technology bills by Rep. Alan Grayson, D-Fla.

Oct. 2: The Department of the Treasury and the IRS invite comment on how to define certain types of properties that qualify for the ITC in anticipation of issuing standard definitions. The rare invitation includes eight types of property, with comments sought on what defines them, whether dual-use property should qualify for the ITC and whether there’s a need for other energy-related definitions. Those comments are accepted until Feb. 16.

Oct. 14: The city council in Bakersfield, Calif., takes the unusual step of passing a resolution urging Congress to immediately extend the ITC. The resolution, which passes 5-1, says that nearly $413 million has been invested in Bakersfield solar installations since 2010 and that losing the ITC would lead to significant job loss in the city.

Dec. 18: After weeks of negotiating, President Obama signs the $1.1 trillion Consolidated Appropriations Act of 2016 which includes the $680 billion Protecting Americans from Tax Hikes (PATH) Act of 2015. The Consolidated Appropriations Act of 2016 includes provisions to extend and gradually phase down ITC and PTC. The PTC is extended through 2016 at prior levels, and is phased down by 20 percent per year through 2019. The ITC and the solar residential energy credit are extended at 30 percent through 2019 then the ITC is gradually reduced to a permanent level of 10 percent for those projects where construction starts after 2021 and are placed in service after 2023. The homeowner solar credit goes away after 2021. The legislation also extends the right to opt for an ITC in lieu of PTCs.

Dec. 22: The Public Utilities Commission of Nevada adopted a proposal implementing new rates for NV Energy customers who participate in net energy metering. Net metering rates determine the amounts that utility companies are required to pay residential customers for any excess electricity they generate from rooftop solar systems. Utility companies generally oppose these fees, in part because they bear the cost for maintaining the power grid infrastructure; residential solar providers contend the incentive is key to supporting the growing industry and generating the economic and environmental benefits that result. Similar considerations are underway in several other states and net metering promises to be a hot topic for the year to come.

Conclusion

The sometimes-unpredictable world of renewable energy tax credits got a modicum of predictability in 2015. The IRS clarified some issues upon which taxpayers have been waiting and–despite a flood of legislative proposals, both in favor and against renewable energy credits–the Congress and President Obama settled the biggest issue with multi-year, phase-down extensions of the ITC and PTC. For the first time in years, the industry has a long-term understanding of what’s coming–at least in terms of federal tax credits. Meanwhile, adjustments in the capital market – from the effect of lower oil prices to the rising cost of capital – may pose challenges to the renewable energy community in the year to come.