December 29, 2015
Extension of the ITC/PTC
On December 18, 2015, Congress approved and President Obama signed into
law the Consolidated Appropriations Act, 2016 (the "Act"). Among the 887-page budget bill
myriad provisions is an extension of federal income tax credits for solar, wind and certain other
renewable energy facilities.
- Solar Energy Investment Tax Credit (ITC) Extended. The Act extends the 30 percent ITC
for solar power facilities, previously available for such facilities placed in service on or before
December 31, 2016, to such facilities where construction commences on or before December 31, 2019 and
which are placed in service before 2024. For solar facilities whose construction commences after
December 31, 2019, the ITC decreases. Projects that (i) commence construction during 2020 and are
placed in service before 2024 are eligible for an ITC of 26 percent; (ii) commence construction during
2021 and are placed in service before 2024 are eligible for an ITC of 22 percent; and (iii) commence
construction after 2021 or are placed in service after 2023 are eligible for an ITC of 10 percent.
Changing from a deadline based solely on placement in service to one focused on commencement of
construction was intended to provide facility developers with greater certainty, although the retention
of an outside, hard, placed-in-service deadline of December 31, 2023 will provide an incentive for developers
to follow through to completion once they have satisfied the "begun construction" guidelines previously
released by the Internal Revenue Service. (Technically, these guidelines will need to be updated by the
Service to reflect the dates contained in the new legislation.)
- Solar Homeowner Credit Extended. The Act extends the credit for homeowners that purchase and
install qualified solar electric property and/or qualified solar water heating property. This credit also
phases down over time. The credit for such qualified solar property purchased and installed prior to
January 1, 2020 is 30 percent. The credit for qualified solar property purchased and installed in 2020
is reduced to 26 percent, and the credit for qualified solar property purchased and installed in 2021
is further reduced to 22 percent. There is no credit for property installed after 2021.
- Wind Energy Production Tax Credit (PTC) Extended. The Act restores PTCs for wind power projects
that begin construction before 2020. Like the solar ITC, PTCs will be subject to a ratchet down beginning
in 2017. Projects that begin construction before 2017 are eligible for PTCs for sales of electricity equal
to 1.5 cents per kilowatt, as adjusted for inflation. (For sales occurring in 2015, the applicable
inflation-adjusted rate is 2.3 cents per kilowatt.) Thereafter, PTCs will be reduced by (i) 20 percent for
projects beginning construction in 2017; (ii) 40 percent for projects beginning construction in 2018; and
(iii) 60 percent for projects beginning construction in 2019. These extensions are retroactive to
January 1, 2015; thus projects beginning construction in 2015 qualify. It should be noted that, because the
PTC is generally available over a 10-year credit period, the impact of the credit phase-out will be felt
over the entire 10-year period in which the PTCs are available.
- PTC/ITC Option Extended. The Act extends the right for "qualified investment credit facilities"
(as defined in Code Section 48(a)(5)(C)), including wind power projects, to opt for an ITC equal to 30 percent
of qualified costs in lieu of PTCs. For qualified investment credit facilities other than wind projects, the
election is available for those facilities whose construction has commenced prior to January 1, 2017. In the
case of wind power projects, the construction commencement deadline is extended to January 1, 2020, provided
that (i) for wind projects beginning construction in 2017, the ITC is reduced to 24 percent; (ii) for wind
projects beginning construction in 2018, the ITC is further reduced to 18 percent; and (iii) for projects
beginning construction in 2019, the ITC is limited to 12 percent. These amendments are retroactive to
January 1, 2015; therefore, projects beginning construction in 2015 qualify.
- Other Renewable Energy PTCs Extended. The Act extends PTCs at current rates for qualifying biomass
facilities (open loop and closed loop), geothermal facilities, landfill gas facilities, trash to cash
facilities, hydropower facilities, and marine and hydrokinetic facilities that begin construction before
2017. These amendments are retroactive to January 1, 2015, so there is no eligibility gap for projects
beginning construction in 2015.
For further information please contact
Nicolai J. Sarad (New York) or
Thomas D. Morton (Washington, D.C.), who would like to thank
Senior Law Clerk Andres Berry for his contribution to this article.
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