Tax Credits Teed Up for Extension

Publication December 16, 2015

Congressional leaders reached agreement last night on a government spending and tax extenders deal that will extend tax credits for US renewable energy projects.

The deal is spread over two bills: an omnibus spending bill to fund the federal government through October 31 next year and a separate tax extenders bill. The measures were split because House Democrats oppose the tax extenders bill and House Republicans are not expected to vote in large numbers for the spending bill. The hope is by separating them, both can clear the House. They are not expected to have trouble in the Senate.

Extensions for wind and solar credits were tacked to the back of the omnibus spending bill rather than the tax extenders bill.

For wind:

Wind developers will have through December 2016 to start construction of new wind farms to qualify for 10 years of production tax credits at the full level. Projects that start construction in 2017, 2018 or 2019 will qualify for 10 years of tax credits at reduced levels. The levels are 80% for projects starting construction in 2017, 60% in 2018 and 40% in 2019.

Developers will have the option to claim a 30% investment tax credit instead of PTCs during the same period and with the same phase down. Thus, for example, a developer who starts construction of a wind farm in 2018 could claim an 18% investment tax credit (30% x 60%).

For solar:

Solar projects that are under construction by December 2019 will qualify for a 30% investment tax credit. The credit will fall to 26% for projects starting construction in 2020 and 22% for projects starting construction in 2021.

Projects that are under construction before these deadlines must be placed in service by December 2023 to qualify.

The investment credit will revert to its permanent 10% level after that. Thus, any project that is not under construction in time would still qualify for a 10% investment tax credit.

The bill would also extend the residential solar credit for homeowners who choose to buy solar rooftop systems or solar hot water heaters rather than enter into solar leases or power contracts with solar companies. They could claim a 30% tax credit on such equipment put in service through 2019. The credit drops to 26% in 2020 and 22% in 2021. It disappears after that.

Other renewables:

The current 30% investment tax credit for fuel cells would not be extended. Fuel cells must be in service by December 2016 to qualify under existing law.

Geothermal, biomass, landfill gas, incremental hydroelectric and ocean energy projects will have until December 2016 to start construction to qualify for production tax credits. Developers of such projects will retain the option to claim a 30% investment tax credit instead of PTCs during the same period. Such projects were not given the same additional phase down as wind and solar. The provisions affecting these types of projects are in the tax extenders bill.

Other tax benefits:

The tax extenders bill would extend a 50% “depreciation bonus” that expired at the end of last year retroactively to the start of 2015.  Companies that put new equipment in service in 2015, 2016 or 2017 could deduct 50% of the tax basis in the equipment immediately and the other 50% using the normal depreciation table.  New equipment put in service in 2018 would qualify for a 40% bonus.  Equipment put in service in 2019 would qualify for a 30% bonus. 

Assets, like transmission lines and gas-fired power plants that have longer depreciable lives, could qualify for the 50%, 40% or 30% bonus for an extra year.  Thus, for example, a 50% bonus could be claimed on the cost of transmission assets completed in 2018.  However, the 50% bonus would only apply to the basis built up in the asset through the end of 2017.  Presumably, a 40% bonus could be claimed on the remaining basis.

Projects on Indian reservations can be depreciated more rapidly than projects in other parts of the United States.  For example, a wind farm or solar project on an Indian reservation can be depreciated over three years rather than five years.  This will remain true of any such projects that are completed by December 2016.  The provision had expired at the end of 2014.  The tax extenders bill would extend it retroactively.     

Process and timetable:

Both Republicans and Democrats are meeting in separate caucuses this morning to count votes.

The bills still have to pass. We will see during the day today how much controversy emerges.

The House is expected to take separate votes on the spending and tax extenders bills. The tax extenders bill is expected to be put to a vote on Thursday.  A vote on the omnibus spending bill is not expected until Friday.  House leaders are counting on Republicans to pass the tax extenders bill and Democrats to pass the spending bill. The House may then package the two bills together and send a single measure to the Senate. The Senate is expected to try to vote promptly, but with five US senators running for president, there is the possibility that the process could take longer there. If any of the presidential candidates filibusters, then the process could take up to eight days in the Senate.

The federal government runs out of spending authority at midnight tonight. Both houses are expected to pass continuing resolutions today to push the deadline for Congressional action on the omnibus spending bill to December 22.

by Keth Martin, in Washington


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