The Production Tax Credit – What Now?

The federal Production Tax Credit for renewable energy expired on January 1st, 2014. This credit allowed renewable energy technologies including wind, open and closed-loop biomass, geothermal, municipal solid waste, incremental hydropower, and marine renewables to claim a tax credit* for every kilowatt-hour of electricity generated during the first ten years of the project’s life. In addition, legislation passed in February 2009 (The American Recovery and Reinvestment Act of 2009 (pdf), or ARRA) allowed projects that were eligible to claim the PTC to instead claim a 30% Investment Tax Credit (pdf), or ITC. With the PTC expiration, so goes their eligibility for the ITC.**

To date, utility-scale wind projects have been the primary beneficiary of this credit. This is the fourth time the PTC has expired since its creation in 1992. During previous periods when the credit lapsed, or was in jeopardy, the wind industry suffered as development on projects that couldn’t meet the deadline ground to a halt, while later stage projects rushed to finish construction in time. Impacts were particularly negative for the manufacturing sector, which had to ramp up production to meet demands during the boom periods and then contract during the busts, hindering the development of a strong domestic industry.

The graphic below from EIA depicts annual and cumulative wind power installations with notations on important policy changes for the PTC and ITC.

Wind power with PTC and ITC policy changes

This year’s credit expiration may not cause quite the same level of calamity as during previous expirations, in large part due to legislative changes made in January 2013. This most recent set of modifications state that projects hoping to claim the PTC had only to begin construction before the January 1 deadline, rather than be placed into service, as was previously required. Committing 5% of the project capital costs, including placing orders for key equipment, are activities that qualify a project as having begun construction. This allows the supply chain and construction industry to continue at pace to complete projects that were sufficiently far along in the development process. Once the “begin construction” deadline is met, projects must be completed by January 1, 2016, or otherwise demonstrate continuous construction/ continuous efforts as defined in Sections 3 and 4 of IRS Notice 2013-29 (pdf).

Although critics say that the renewable energy production tax credit has outlived its usefulness, the industry as a whole can perhaps take some comfort in the knowledge that the PTC has been renewed three times previously, and also been extended or modified a total of 11 times. There have been suggestions that Congress allowed the PTC, as well as other tax credits, to expire in 2013 as part of a plan to address it as part of broader tax reform. Proposals in the Senate Finance Committee would replace the multiple existing credits with a single credit for renewable energy, and President Obama has asked Congress to extend the tax credit permanently.

With renewable energy an acknowledged component for increasing domestic energy independence, and securing an environmentally stable future, it seems unlikely that the credit will be abandoned completely. The big question is whether Congress will be able to address the PTC in a timely enough fashion that projects in earlier stages of development won’t suffer from its uncertain fate. ANTARES has helped numerous clients evaluate opportunities to bring alternative funding to their projects, including tax credits. Please give us a call if you’d like to consult with us on qualifying for the PTC, ITC, or any other aspect of your renewable energy project.

*The most recent adjustment for inflation allows wind, closed-loop biomass, and geothermal facilities could claim 2.3 cents/kWh generated, while other eligible technologies can claim 1.1 cents/kWh)
**The ITC remains in place until the end of 2016 for solar, fuel cells, small wind turbines, geothermal systems, microturbines, and CHP.

About Heidi Alsbrooks


Heidi Lestyan Alsbrooks is a project manager and lead technical analyst for ANTARES. Her experience includes resource assessments, performance evaluation, visualization studies and economic analyses. She specializes in wind energy, renewable energy policy, and GIS-based resource modeling.

Comments

  1. In order to see real progression in the renewable energy market, each faction of it should get attention and receive these tax credits, I was not aware that all forms of renewable energy did not receive the same tax credits as solar does. I hope this is an issue that will be brought before our countries leaders and seriously addressed, I will look for an update article regarding this matter, and keep my ears open for any new legislation.

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