June 18, 2019

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Bipartisan Budget Breakthrough Gives Orphans New Life

Congress last week reached a sweeping two-year budget deal, breaking a months-long legislative logjam and providing a vehicle for a laundry list of non-controversial items that had been captive to the broader standoff over immigration.  In addition to establishing higher spending caps for 2018 and 2019 and funding the government for six weeks while a long-term omnibus bill is written, the package included everything from a year-long debt ceiling increase to $89 billion in disaster aid.  But it was the tax title that provided the most suspense, as the fate of the so called “orphaned” renewable technologies remained up in the air until the release of the legislative text.  In the end, Congress passed, and the President signed into law, a multi-year extension and phase-out of the investment tax credit (ITC) for geothermal heat pumps, fuel cells, small wind, hybrid solar and combined heat and power systems, while providing a one-year retroactive reprieve for more than 30 other lapsed “extender” provisions.

Enactment of the Bipartisan Budget Act of 2018 concludes a saga that had recently had slipped into year three for the energy orphans, restoring these technologies to the favorable 2015 PATH Act deal on ITC and harmonizing the credit’s schedule with that of wind and solar.  Going forward, the value of the ITC for most qualified energy property will depend on the year – property constructed or placed into service through 2019 will be eligible for the full 30%, falling to 26% in 2020, and again to 22% in 2021, before phasing out altogether in subsequent years.  Commercial installations of geothermal heat pumps, microturbines, and combined heat and power systems would continue to receive a steady 10% credit over the same period.

The Act also revives dozens of other lapsed credits for 2017 just in time for tax filing season, albeit retroactively.  Of note in the energy space: the production tax credit (PTC) for newly constructed facilities producing electricity from renewable technologies other than wind or solar (e.g. biomass, hydroelectric, municipal solid waste, landfill gas, tidal); credits for fuel cell and 2-wheeled electric plug-in vehicles, respectively; the credit for energy-efficient new homes; and the deduction for energy-efficient commercial buildings.  While the fate of these provisions is uncertain beyond the 2017 tax year, House Ways and Means Committee Chairman Kevin Brady (R-TX), a fierce critic of the “extenders” process, has indicated that he intends to hold hearings in the near future.  While the tax package fell short of the two-year extension sought by Senate Finance Committee Chairman Orrin Hatch (R-UT), leaving many stakeholders to sweat out yet another year of uncertainty, the erstwhile orphans can finally can rest easy knowing that their future is secure.

© 2019 Bracewell LLP


About this Author

Vivian Ouyang, tax, transactions, capital markets, attorney, Bracewell law firm
Senior Counsel

Vivian Ouyang focuses on federal tax issues in a wide range of transactions, including joint ventures; project finance; mergers; acquisitions; divestitures; and cross-border transactions.  Vivian also has experience in capital markets transactions, traditional and structured financial products, financing transactions, and investment fund transactions.

Vivian has represented domestic and foreign financial institutions including commercial and investment banks and insurance companies, energy companies, technology companies, and consumer products...


Liam Donovan develops effective advocacy and communications strategies for clients on tax, infrastructure, energy and other public policy issues, and helps guide these clients through the federal legislative and regulatory process.

Liam joined Bracewell from Associated Builders and Contractors (ABC), where he served as ABC’s lead on tax, energy and fiscal legislative issues for more than six years, representing the construction industry before the House, Senate, White House and federal agencies, while providing strategic guidance on the association’s political activities. He also frequently served as a spokesperson for the association, appearing on numerous television and radio programs for policy and political analysis. Prior to ABC, Liam worked for the National Republican Senatorial Committee (NRSC), ultimately serving as a regional finance director under Majority Whip John Cornyn (R-TX). In that role, he worked with Republican incumbents, challengers and campaigns across 20 states, raising millions of dollars in support of GOP Senate candidates.

Liam is a frequent commentator and writer on national politics.  He has been published in National Review.