by Brianna Crandall — December 28, 2015—Advanced Energy Economy, a national business group, issued the following statement last week upon final passage by the U.S. Congress of the Omnibus government funding and tax extenders bill. The Senate passed the House bill by a vote of 65-33, and the President signed the bill later the same day.
Malcolm Woolf, senior vice president, Policy and Government Affairs, Advanced Energy Economy, commented:
What the growing advanced energy market needs more than anything is certainty. While this package lacks support for combined heat and power, fuel cells, and other important advanced energy technologies, it represents a major step forward for the solar, wind and energy efficiency industries. Investors and project developers now have the market signal they need for investment, business growth, and jobs in the coming years.
Background:
The compromise deal extends and phases out the wind production tax credit until 2020, as well as extending and phasing down the solar investment tax credit until 2022. The intent was to provide a bridge until EPA’s Clean Power Plan takes hold to further boost demand for low-emission energy solutions.
Investment Tax Credit (ITC)
The ITC will be extended for all solar projects through 2021, with a gradual phase-down for both commercial and residential projects. Importantly, solar projects will receive the credit based on when construction begins instead of when a project is placed into service, as existing law currently states. This change in date of eligibility (from “commence operation” to “commence construction”) has been a top priority of the solar industry, notes AEE.
For commercial solar projects, the ITC will be extended through 2021, with a gradual phase-down. Projects that start construction by December 31, 2019, will continue to receive a 30% credit. Projects that commence in 2020 will qualify for a 26% credit. Those that start in 2021 will qualify for a 22% credit. After 2021, the ITC for commercial solar projects will remain at 10% in perpetuity.
For residential solar projects, the credit will also be extended through 2021 but will expire entirely after that year. The percentage phase down for years 2020 and 2021 will follow the same schedule as commercial solar projects. Under current law, the credit for residential projects expires after 2016.
Fuel cells will not qualify for the ITC as extended. However under current law, fuel cells projects will still qualify through 2016.
Production Tax Credit (PTC)
Based on analysis of the language, wind developers can take advantage of the production tax credit (PTC) through 2019 and retroactively for projects begun in 2015. After 2016, wind projects will qualify for tax credits at reduced levels. These levels will be 80% of the current level for projects starting construction in 2017, 60% in 2018, and 40% in 2019. The credit will expire permanently in 2020.
Wind developers will still have the option of using the ITC instead of the PTC through 2019, subject to the same percentage phase down schedule as the PTC. For example, a project in 2019 will receive 12% credit (30% ITC x 40% reduced level).
Other advanced energy technologies such as geothermal, biomass, landfill gas, incremental hydroelectric, and ocean energy projects will continue to qualify for the PTC as well, but must start construction by December 2016.
Energy Efficiency Credits
As a part of the tax extenders deal, Section 179D credits for energy efficiency projects will be extended through 2016 and retroactively for 2015. The provision extends through 2016 the above-the-line deduction for energy efficiency improvements to lighting; heating, ventilation and air-conditioning (HVAC); and hot water systems of commercial buildings.
The Sec.179D standards are also updated from 2001 to 2007 to reflect new standards by the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE). This provision will modify the deduction for energy-efficient commercial buildings.
The investment and production tax credits can be found in the spending bill on pages 2002-2007. The energy efficiency credits are found in the tax extenders package on pages 91 and 196-197.
