The Build Back Better Act (BBBA), which passed the US House of Representatives on November 19, 2021, allocates nearly $900 billion to clean energy investments and tax incentives. Democratic Senator Joe Manchin of West Virginia indicated he wouldn’t vote for BBBA, likely thwarting the bill in its current form.
Given bipartisan support for many clean energy provisions in the BBBA, a scaled-back version containing those provisions is expected to be introduced in early 2022.
Following are some noteworthy provisions of the current bill.
Broadening Incentives for Green Energy Investments
The BBBA proposes to extend and modify existing incentives currently set to phase out or expire, including the Section 45 Production Tax Credit (PTC) and the Section 48 Investment Tax Credit (ITC).
The act would expand the scope of qualified investments, which would include stand-alone energy storage property, qualified biogas property, microgrid controllers, and transmission property. More investors could also benefit from a direct-pay option, which is discussed below.
Production Tax Credit
The PTC is currently expired for projects with construction starting after December 31, 2021, but the BBBA would extend the credit to projects beginning construction prior to January 1, 2027. Solar PTC would be revived and extended through 2026.
The base rate of the PTC would be .5 cents per kWh of electricity produced, with a maximum credit of 2.5 cents per kWh of electricity produced when prevailing wage and apprenticeship requirements are met.
A 10% bonus credit would be available for projects that meet the domestic content requirements or those located in qualifying energy or low-income communities.
Investment Tax Credit
The BBBA proposes to extend the ITC to projects beginning construction prior to January 1, 2027.
The base rate would be 6% with a maximum credit of 30% when prevailing wage and apprenticeship requirements are met.
A 10% bonus credit would also be available for projects meeting domestic content requirements or are in energy or low-income communities.
Under current law, the ITC started phasing out in 2019.
Current Law ITC Phasedown Schedule
- 26% for projects started in 2021 and 2022
- 22% for projects with construction beginning in 2023
- 10%, which is a permanent reduction, for projects beginning construction after 2023
A New Framework
Credit structures for the PTC and ITC are two-tiered under the BBBA. There’s a base rate and a bonus rate that’s five times the base rate for eligible projects.
Base Rates
- PTC base rate is 0.5 cents per kWh of electricity produced
- ITC base rate is 6% of qualifying property costs
Bonus Rates
Bonus rates would become available at five times the base rate, which is 2.5 cents per kWh for the PTC and 30% of eligible costs for the ITC.
For taxpayers to earn the proposed bonus rates, prevailing wage and apprenticeship requirements to be met include:
- All laborers must be paid prevailing wages—the average wage paid to similarly employed workers in a specific occupation.
- A certain percentage of wages must be paid to qualified apprentices.
Enhanced Incentives
BBBA proposals include enhanced incentives for Section 45 PTC and Section 48 ITC:
- 10% bonus to taxpayers who meet the domestic content requirement and can certify that the domestic manufacturing of property or facilities was produced at least 40% within the United States before January 1, 2025, increasing each year to 55% through 2026. For offshore wind projects, the domestic content requirements are modestly lower.
- 10% additional bonus for property located in an energy community, which refers to coal mines closed after December 31, 1999, or coal-fired power plants retired after December 31, 2009. Energy communities specifically exclude oil and gas communities.
- 10% additional bonus for solar or wind property placed in service in connection with low-income communities (as defined in Section 45D) or on Indian Land.
- 20% additional bonus for solar or wind projects in qualifying low-income residential buildings or low-income economic benefit projects.