Tax Reform Extends Credits for Renewable Energy Companies

The Bipartisan Budget Act of 2018 (Budget Act), which was signed into law February 9, 2018, extends the production tax credit (PTC) and investment tax credit (ITC) that previously applied to only wind and solar companies to other renewable energy resources.

Background

Under the Protecting Americans from Tax Hikes Act (PATH Act), which President Obama signed into law in 2015, PTCs and ITCs were extended for wind and solar companies.

For wind power-generating companies, PTCs were extended through 2017 with a phasedown of the credit through 2019. The full 30% ITC for solar power generating companies was extended through 2019 with a phasedown through 2021, dropping to 10% thereafter. However, other renewable energy resources were left out of the legislation for years after 2016.

Tax Reform

On December 22, 2017, President Trump signed the tax reform reconciliation act—also known as the Tax Cut and Jobs Act (TCJA)—into law. The legislation made sweeping changes to the tax code, including several provisions that specifically impact the renewable energy sector.

During the bill’s drafting, the Trump administration and Republican-controlled congress had initially signaled that PTCs and ITCs as provided under the PATH Act might be terminated. However, the TCJA retained PTCs and ITCs for wind and solar power companies—but other renewable energy resources were ignored. In effect, the TCJA left the PATH Act provisions impacting renewable energy resources untouched.

The Budget Act

To avoid a government shutdown in early 2018, President Trump signed the Budget Act.  Under the new law, the PTCs and ITCs provided for wind and solar companies under the TCJA were expanded, with limitations, to other renewable energy resources as well.

Production Tax Credit Extensions

Before the Budget Act, energy property eligible for the 1.5 cent—adjusted for inflation—PTC generally included only wind energy-producing property. For certain other renewable energy resources otherwise qualifying under Section 45, the property was only eligible if the construction of the facility began before 2017.

Under the Budget Act, the beginning of construction deadline is extended for one year—for years before 2018—for the following facilities used to produce electricity:

  • Closed-loop biomass
  • Open-loop biomass
  • Geothermal
  • Landfill gas
  • Trash
  • Hydropower
  • Marine
  • Hydrokinetic

Investment Tax Credit Extensions

The 30% ITC is also extended for certain qualified facilities—in addition to solar—including property generating electricity with any of the following:

  • Fuel cells
  • Microturbines
  • Combined heat and power
  • Small wind energy
  • Fiber-optic solar
  • Equipment using geothermal heat pumps

For such properties, the Budget Act imposes a beginning of construction deadline of December 31, 2021.

ITC is also phased out for qualified fuel cell property, qualified small wind property, and fiber-optic solar property if the property isn’t placed in service before 2024. The ITC percentage is reduced to 26% if construction begins in 2020 and 22% if construction begins in 2021. These deadlines match the extension and phaseout for solar property in the PATH Act.

We’re Here to Help

For more information on how tax reform and the Budget Act may impact you or your business, contact your Moss Adams professional. You can also download our complimentary Renewable Energy Guide for more insight into investing in renewable energy or visit our dedicated tax reform page to learn more.