An investment tax credit extension is back before Congress.
The solar industry is making a major push, but the proposal faces long odds before the November 2020 elections. The chances improve after 2020 depending on the election results.
The House tax-writing committee may vote this fall to extend renewable energy tax credits. The House is controlled by Democrats. The challenge is to get any such measure through the Senate, which is under Republican control.
Identical bills introduced in the House and Senate in late July would allow another five years before the investment tax credit starts to phase out on solar projects, fuel cells and small wind turbines. Such projects qualify currently for a 30% investment tax credit if under construction by the end of this year, a 26% tax credit if construction starts in 2020 and a 22% tax credit if construction starts in 2021. All such projects must be completed by the end of 2023 currently to qualify for tax credits at these rates.
All the dates would be pushed back five years. Thus, the deadline to start construction to qualify for a 30% tax credit would be the end of 2024. The two-year phase down would occur in 2025 and 2026. Projects would have to be completed by the end of 2028.
The House bill has 29 co-sponsors, including four Republicans. The Senate bill has 16 co-sponsors, but no Republicans.
As under current law, solar generating equipment that misses the new deadlines would still qualify for a 10% investment tax credit. Fuel cells, solar fiber optic equipment and small wind turbines that miss the new deadlines would not qualify for any tax credit.
Geothermal heat pumps and small cogeneration facilities qualify currently for a 10% investment tax credit if under construction by the end of 2021. This would be changed to the end of 2026. There is no statutory deadline to finish, but such a project must be completed within four years or the owner must prove there was continuous work on the project after the year construction started.
Geothermal power plants qualify currently for a permanent 10% investment tax credit or the owner can elect under section 48(a)(5) of the US tax code — as can owners of wind, biomass and other projects that qualify for production tax credits — to claim a 30% investment tax credit if under construction by the end of 2017 (2019 for wind). The bills would not extend this option.
A 30% residential tax credit for homeowners who buy new solar electric systems, solar hot water heaters, fuel cells, small wind turbines and geothermal heat pumps that they will own and put to personal use would also be extended. The bills would extend it for the same period with the same phase down as for the solar investment tax credit, except the deadlines would be deadlines to place such equipment in service rather than merely to start construction.
The wind industry has not made a push so far to extend tax credits for wind projects. Wind is expected to enjoy an advantage of 1¢ a kilowatt hour in the levelized cost of energy versus solar after 2023 once tax credits phase out. The advantage will erode if solar projects continue to qualify for large tax credits while wind projects do not.
The House tax-writing committee voted in June to allow wind projects that start construction in 2020 to qualify for tax credits at 40% of the full rate. Wind projects qualify for production tax credits on the electricity sold to third parties for the first 10 years after a project is first put in service. The tax credits are $25 a megawatt hour for projects that were under construction by the end of 2016. Projects that started construction in 2017, 2018 or 2019 qualify for tax credits at 80%, 60% or 40% of the full rate. An investment tax credit can be claimed instead. The investment tax credit is 30% of the “tax basis” the owner has in the project. The percentage phases down over the same construction-start schedule.
Meanwhile, offshore wind companies are lining up behind two competing bills that were introduced in the Senate in July to allow more time for offshore wind projects to start construction to qualify for a 30% investment tax credit. The extra time could not be used to qualify for production tax credits.
One bill, sponsored by Senators Ed Markey (D-Massachusetts) and Sheldon Whitehouse (D-Rhode Island), would allow a 30% investment tax credit to be claimed on any offshore wind project that is under construction by the end of 2025. The other bill, backed by Senators Tom Carper (D-Delaware) and Susan Collins (R-Maine), would allow a 30% investment tax credit to be claimed on offshore wind projects that start construction by the end of 2026 or, if later, the end of the year the US reaches 3,000 megawatts of installed offshore wind capacity, not counting Block Island and any other projects that are under construction for tax purposes by the end of this year.