The Force Awakens – and Produces a Tax Extenders Deal

Posted by Dylan Reed and Arvin Ganesan on Dec 18, 2015 3:52:55 PM


After a whirlwind fall, Congressional leaders negotiated a spending bill and tax package to end 2015. The joint package includes extensions for numerous tax provisions, including several that benefit the renewable energy and energy efficiency segments of the advanced energy industry. Not all of the industry got a boost: Proposed provisions that would aid a number of other advanced energy technologies, such as fuel cells, industrial efficiency, and combined heat and power (CHP), were not included in the final package. Still, some believed that it would take a miracle to produce a deal like this, but Congress worked for the better part of a year to build this package. The House gave its blessing this morning and the Senate voted shortly thereafter. We expect the package to be signed into law by the President. We will continue to analyze the full text, but here is what we know so far.

News reports suggest that the final deal for the advanced energy credits represents a compromise between leadership in the Republican and Democratic Parties. Ending the oil export ban has long been a priority for Republican leadership, and in exchange for that provision, Republican leadership ultimately agreed to an extension for tax credits for the solar industry and segments of the wind industry. While some of these credits phase down over the next five years, the long-term nature of the package will provide certainty in the market for those technologies.

That said, some important advanced energy technologies do not benefit from this legislation, including fuel cells and industrial efficiency. Fuel cell projects will still qualify for the investment tax credits (ITC) through 2016. A bipartisan group of lawmakers had pushed, the POWER Act, a bill that would make combined heat and power (CHP) and waste heat to power eligible for the ITC, as a part of tax extenders. Despite strong support from businesses, the POWER Act provisions were not included in the deal.

Here’s a closer look at the final details of the package:

Investment Tax Credit (ITC)

The ITC would be extended for all solar projects through 2021, with a gradual phase down for both commercial and residential projects. Importantly, solar projects would 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.

For commercial solar projects, the ITC would be extended through 2021 with a gradual phase down. Projects that start construction by December 31, 2019, would continue to receive a 30% credit. Projects that commence in 2020 would qualify for a 26% credit. Those that start in 2021 would qualify for a 22% credit. After 2021, the ITC for commercial solar projects would remain at 10 percent in perpetuity.

For residential solar projects, the credit would also be extended through 2021 but expire entirely after that year. The percentage phase down for years 2020 and 2021 would follow the same schedule as commercial solar projects. Under current law, the credit for residential projects expires after 2016.

Fuel cells do not qualify for the ITC as extended. Fuel cells projects 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 would qualify for tax credits at reduced levels. These levels would be 80% of the current level for projects starting construction in 2017, 60% in 2018, and 40% in 2019. The credit would expire permanently in 2020.

Wind developers would 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 would 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, would continue to qualify for the PTC as well, but only if they start construction by December 2016.

Energy Efficiency Credits

As a part of the tax extenders deal, Section 179D credits for energy efficiency projects would 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, cooling, ventilation, 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 would modify the deduction for energy efficient commercial buildings.

The Section 45L credit for energy efficient new homes would be extended through 2016. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria. All other criteria remain the same.

The Section 25c credit for nonbusiness energy property extends through 2016 the credit for purchases of nonbusiness energy property. The provision allows a credit of 10% of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500. This credit was also modified to require projects placed in service in 2016 to meet updated Energy Star requirements for roof products, exterior windows, and exterior door product

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 83-85, 90-91 and 196-197.

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Featured photo courtesy of PhotoPhiend.

Topics: Federal Policy



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