On December 21, 2020, the US House of Representatives and Senate passed a year-end tax package designed to extend certain renewable energy tax credits and other tax incentives. The bill was sent to President Trump for signature.
A one-year extension of the production tax credit (PTC) for wind projects in accordance with Section 45 of the Tax Code is important for the 2020 Tax Guarantee and Disaster Tax Relief Act. a two year investment tax credit (ITC) extension for solar projects under Section 48 of the Code; a new five-year ITC for offshore wind projects (without exit) under Section 48 of the Code; and a two-year extension of the PTC for carbon capture projects under Section 45Q of the Code.
Currently, the PTC for wind projects for projects whose construction has not yet started will expire at the end of 2020. The one-year extension would provide 60 percent PTC for wind projects beginning construction in 2021. The choice to take over the ITC instead of the PTC will also be extended by one year. In the event of an enactment, the PTC would look like this:
- Projects whose construction begins before the end of 2016 – 100 percent
- Projects starting construction in 2017 – 80 percent
- Projects starting construction in 2018 – 60 percent
- Projects whose construction begins in 2019 – 40 percent
- Projects starting construction in 2020 – 60 percent
- Projects starting construction in 2021 – 60 percent
The Tax Extension Act also provides for the PTCs to be extended by one year for the following electrical systems, construction of which will begin before the end of 2021:
- Closed cycle biomass;
- open biomass;
- geothermal energy;
- Landfill gas;
- Municipal waste;
- incremental hydropower; and
- marine and hydrokinetic renewable energy.
The ITC is currently set to decrease from 26 percent for solar projects at the end of 2020 to 22 percent for projects that have not yet started construction. The two-year extension would keep the ITC of 26 percent for solar projects starting construction in 2021 or 2022. In the event of entry into force, the ITC would look like this:
- Projects whose construction begins before the end of 2019 – 30 percent
- Projects starting construction in 2020 – 26 percent
- Projects starting construction in 2021 – 26 percent
- Projects starting construction in 2022 – 26 percent
- Projects starting construction in 2023 – 22 percent
- Projects starting construction from 2024 – 10 percent
To qualify for the 30 percent, 26 percent or 22 percent ITC, the solar project must be commissioned before January 1, 2026. If the solar project is commissioned on or after January 1, 2026, the project is only eligible for the 10 percent ITC.
The law on tax extensions provides for an extension of two years for projects to tax CO2 emissions under Section 45Q of the Code, so that the qualifying installation must start construction before January 1, 2026 (and not before January 1, 2024) .
The Tax Extension Act also adds a new provision that allows offshore wind turbines to be included in the ITC under Section 48 if they start construction before the end of 2025. This is a period four years longer than the 2021 start construction requirement for all other wind turbines. In addition, the offshore wind ITC will not expire and will remain at the ITC level of 30 percent.
Finally, the Tax Extension Act adds waste energy recovery properties as energy ownership that is eligible for ITC under Section 48. This applies to systems that are being phased out, which apply to qualified fuel cell, fiber optic solar and small wind systems. These are energy projects in which exhaust gases or heat losses from buildings or devices can be used (with the exception of combined heat and power or CHP). The projects must not exceed 50 MW.