By Steve Carter, CPA, Principal
ASL Renewable Energy Group
The COVID-19 pandemic has created an array of financial, operational, and production challenges for businesses across many industries. Decreasing demand for products/services, constantly changing government regulations, and erratic consumer spending have left many facing unique challenges. Unfortunately, the renewable energy industry has not escaped the pandemic’s reach. According to the International Energy Agency’s (IEA), The Impact of the COVID-19 Crisis on Clean Energy Progress, the pandemic has had an adverse impact on renewable energy investments. Although the causes for the delay are multi-faceted, how the industry recovers and thrives is largely based on government policies and expenditures to implement change. The good news is, several important tax incentives were recently extended and more are awaiting Congressional approval. We have summarized them below.
2020 Energy Incentives Extended
As part of the Consolidated Appropriations Act, 2021, (CAA) which was passed in late December, there were several renewable energy tax incentives extended. The extensions are essential to incentivizing the development and production of renewable energy technologies. Key details include:
- Production Tax Credit – A credit is provided based on the kilowatt hour electricity generated at eligible facilities using renewable resources. The CAA extended the credit for one year providing an additional boost to wind, landfill gas, hydropower, geothermal, and other energy producers. This means the credit can be claimed on any facility if construction started before January 1, 2022. For qualifying wind facilities, the CAA also extended the phase out percentage permitting certain taxpayers to take the 40% reduced tax credit for facilities that started construction prior to January 1, 2022.
- Investment Tax Credit – There was a two-year extension of the credit in the CAA. This means the 26% credit will be available for properties where construction begins prior to January 1, 2022, and a 22% credit for properties where construction begins prior to January 1, 2023. It is important to note that in order to qualify a property must be placed into service prior to January 1, 2026 to claim the benefits.
- Offshore Wind Facilities – An expanded Investment Tax Credit (ITC) is available for offshore wind facilities if construction began after January 1, 2017, and before January 1, 2026. It is important to note the expanded credit is not subject to the normal phaseouts of other wind facilities.
- Waste Energy Recovery – A new ITC can be claimed for certain waste energy recovery property assuming construction started prior to January 1, 2024. The credit is subject to the same phase-outs as the ITC for small wind energy property.
Green Act of 2021
Expanding on efforts from the Energy Act, the Growing Renewable Energy and Efficiency Now (Green) Act was re-introduced in the House Ways and Means Committee earlier this month. There are several provisions in the Act, which expand eligibility or increase the benefit of many existing tax credit and incentive programs related to clean energy. Although the Act may be subject to modification, the details provide important insight into the changes to come. Key details include:
- Production Tax Credit – The credit would be expanded to include additional facilities such as hydropower and hydrokinetic renewable energy operations through the end of 2026. In addition, the credit for geothermal energy would be extended through year-end. There would also be an extension for qualified wind facilities through 2026.
- Investment Tax Credit – The credit for solar energy property at 30% would be extended through 2025, 26% in 2026, 22% in 2027, and 10% in 2028 and beyond. The credit has been extended to include energy storage technology and line generators at 30% through 2026 and reduces by 4% through 2028.
- Electric Vehicle Sales – The existing tax incentives for the sales of electric vehicles would also be extended. The electric vehicle credit cap for manufacturers would be increased to 600,000 but reduces the credit by $500 for after the first 200,000 units are sold. This replaces the current phaseout period that begins with 200,000 units sold, with a new period that begins during the quarter after the 600,000-unit threshold is reached.
- New Manufacturing Credit – A new credit would be created for manufacturers for sales of zero-emission vehicles and busses equal to 10% of the sale price. To qualify the vehicle must be for domestic use, not weigh more than 7 tons, not contain an internal combustion engine, and be propelled by an electric motor.
Contact us
The current and proposed tax incentives for renewable energy combined with the Biden Administration’s commitment to clean energy spells opportunity for industry companies. If you have questions about the information outlined above or need assistance with a tax planning or compliance issue, ASL’s Renewable Energy Group is here to help. For additional information call us at 408-377-8700 or click here to contact us. We look forward to speaking with you soon.