November 26, 2022

Volume XII, Number 330

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November 23, 2022

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Taxpayer Certainty and Disaster Tax Relief Act of 2020: Spotlight on the Proposed Extensions of Certain Alternative Energy Tax Credits

On Dec. 21, 2020, Congress passed a COVID-19 relief bill (the Consolidated Appropriations Act, 2021) including the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which would provide much-anticipated extensions to critical alternative energy tax credits (including those for wind and solar projects) certain of which were on the brink of expiring. Generally, the bill provides for one- to two-year extensions depending on the energy generated from the project and modifies existing tax credit phasedown schedules provided in the Internal Revenue Code (the Code).

In particular, a noteworthy feature of the bill is that offshore wind projects which start construction through 2025 are eligible for a 30% investment tax credit (ITC) (without a phasedown). Additionally, sustaining the solar ITC at the 26% level for an additional two years is a valuable amendment proposed in the bill. Below is a summary of these and other potential extensions and a new tax credit for waste energy recovery property. 

Extensions Summary Table

Energy Source and Tax Credit Type

Potential COVID-19 Relief Bill Impact

Start of construction date range including proposed extension

Tax credit level (assuming the project qualifies for the credit when it is placed in service)

Solar ITC—Two-Year Extension

Jan. 1, 2020-Dec. 31, 2022

26% ITC, provided the project is placed in service by Dec. 31, 2025 (otherwise, 10% ITC)

Jan. 1, 2023-Dec. 31, 2023

22% ITC, provided the project is placed in service by Dec. 31, 2025 (otherwise, 10% ITC)

Jan. 1, 2024 and later

10% ITC

Residential (Nonbusiness) Solar ITC—Two-Year Extension

Jan. 1, 2020-Dec. 31, 2022

26% ITC

Jan. 1, 2023-Dec. 31, 2023

22% ITC

Wind ITC (Onshore)—One-Year Extension

Jan. 1, 2020-Dec. 31, 2021

18% ITC

Wind ITC (Offshore)

On or before Dec. 31, 2025

30% ITC

Wind Production Tax Credit (PTC) (an alternative to the ITC)—One-Year Extension

Jan. 1, 2020-Dec. 31, 2021

60% PTC (10-year)

Fuel cell, fiber-optic solar and small wind facilities—Two-year extension
-and-
Waste energy recovery property (with capacity of 50 MW or less)—New
Waste energy recovery property is property that generates electricity solely from heat from buildings or equipment that do not have the primary purpose of generating electricity

Jan. 1, 2020-Dec. 31, 2022

26% ITC, provided the project is placed in service by Dec. 31, 2025

Jan. 1, 2023-Dec. 31, 2023

22% ITC, provided the project is placed in service by Dec. 31, 2025

Combined heat and power and microturbine facilities—Two-year extension

On or before Dec. 31, 2023

10% ITC

 Other Extensions

  • The 12-year PTC provided in Code Section 45Q for carbon oxide sequestration would similarly benefit from a two-year extension to begin construction (to the end of 2025).

  • Closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic renewable energy facilities each would receive one-year extensions for beginning construction deadlines (to the end of 2021) for the applicable PTC and, alternatively, the ITC.

Concluding Comments

  • The above extensions relate to when construction must begin to qualify for the applicable tax credits and tax credit amounts, but do not affect the rules for qualification for the credits (for instance, the four-year continuous construction safe harbor still applies where applicable).

  • While the COVID-19 relief bill would provide welcome benefits to various types of renewable energy property (including wind and solar), it does not provide the much-discussed tax credits for standalone energy storage.

  • At the time of the writing of this Alert, President Donald Trump was expected to sign this legislation.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume X, Number 357
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About this Author

Margaret Weil Financial Lawyer Greenberg Traurig Law Firm
Of Counsel

Margaret J. Weil focuses her practice on tax planning and advice for private equity transactions, mergers and acquisitions, financings, and other commercial transactions. She advises domestic and international corporations, partnerships, and high-net-worth individuals on a broad range of tax matters, including domestic and cross-border M&A, securities offerings, restructurings, tax compliance, and the federal, state, and international tax developments that affect their transactions and ongoing business operations.

Concentrations

  • Mergers and acquisitions

    ...
612.259.9739
Jeffrey A. Chester Energy Finance Attorney Greenberg Traurig Los Angeles, CA
Shareholder

Jeff Chester, Global Head of Energy Project Finance, has deep experience handling transactions related to renewable energy, having closed more than 100 wind and solar power projects throughout the United States and Mexico. Jeff has been centrally involved in the development of the equity, debt, and capital markets for renewable energy projects and represents developers, sponsors, lenders, and investors in a wide variety of energy finance transactions. He counsels a broad range of participants on renewable energy finance transactions involving construction and term debt, backleverage, tax...

310-586-7743
Andrew Scher, Greenberg Traurig Law Firm, New Jersey, Corporate, Tax and Energy Law Attorney
Shareholder

Andrew W. Scher has wide-ranging experience advising clients on large and complex corporate transactions. He has primarily counseled companies in the electric and gas industries, leading to the construction of electric generating facilities with values in excess of $3 billion, including solar and wind energy generating projects with values in excess of $1 billion.

Concentrations

  • Corporate transactions
  • Oil and gas 
  • Solar energy projects

 

973-443-3298
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