Extended Deadlines Provide Greater Certainty for Projects

Congress and President Obama delivered an early holiday gift for the renewable energy industry with the passage of legislation that extends a number of tax benefits and credits that had expired, or were set to expire, in 2015. Together with the favorable proposed ruling of the California Public Utilities Commission in December on net metering, the stage is set for continued development of renewable energy projects in 2016 and beyond.

In a break from the year-to-year renewal of tax credits and other benefits, which has led to substantial uncertainty for project planning and financing, Congress opted for a multi-year approach, with some tax benefits being gradually phased out over time. Although this approach provides greater certainly over the next few years, it also signals that Congress is looking for the renewable energy industry to stand on its own in the coming decade as tax benefits expire.

The Investment Tax Credit, under section 48 of the Internal Revenue Code, was extended for commercial solar energy projects that commence construction prior to Jan. 1, 2022. The amount of the ITC will remain at 30 percent of the value of the qualifying energy property included in such projects for projects that commence construction prior to Jan. 1, 2019. The percentage will go down to 26 percent for projects that commence construction prior to Jan. 1, 2020 and 22 percent for projects that begin construction prior to Jan. 1, 2022. If a project commences construction prior to Jan. 1, 2022, but is not placed in service by Jan. 1, 2024, then the ITC goes down to 10 percent.

The ITC for wind projects was extended for projects that commence construction prior to Jan. 1, 2020. The phase out for the ITC on wind energy projects is also less favorable, with the amount of the ITC for the project being reduced by 20 percent for wind projects that commence construction in 2017, 40 percent for those that begin construction in 2018 and 60 percent in 2019. A similar extension and phase out schedule was adopted for the Production Tax Credit available for wind power under section 45 of the Internal Revenue Code, with the PTC being reduced from 100 percent for projects that commence construction by Dec. 31, 2016, to 40 percent prior to Jan. 1, 2020.

The Residential Solar Tax Credit, under section 25(D) of the Internal Revenue Code, was extended for residential solar equipment placed in service as of Dec. 31, 2021. The amount of the residential credit will remain at 30 percent of the qualified solar property expenditure for equipment placed in service by Dec. 31, 2019. The amount will be reduced to 26 percent for equipment placed in service in 2020 and 22 percent in 2021.

Other tax benefits were extended as well, including bonus depreciation on energy property, the 179D deduction for energy efficient commercial buildings and various subsidies for alternative fuels.