IRS allows more time to finish construction (1)
The IRS said this afternoon that developers will have an extra one to two years to finish construction of new wind, solar and other renewable energy projects and qualify for federal tax credits.
Projects on which construction started for tax purposes in 2016 through 2019 will now have six years after the year construction started to finish.
Projects on which construction started in 2020 will have five years.
The IRS also made it easier for developers to qualify for even more time.
Until now, anyone needing more time had to prove continuous work on the project, but the type of continuous work depended on how construction started. If construction started by doing physical work at the site or at a factory on equipment for the project, then the developer had to prove continuous actual construction to be allowed more time.
The IRS said anyone needing more time will be given it if there were merely “continuous efforts” on the project after construction started. Examples of continuous efforts are working on permits and community outreach, getting into the interconnection queue, bidding for power contracts and negotiating a site lease.
The IRS announcement is in Notice 2021-41.
The changes are retroactive.
The five- or six-year period to finish construction without having to prove continuous efforts does not apply to projects on which construction started before 2016. However, such projects should be able to buy more time by proving continuous efforts.
Solar projects face a statutory deadline to be completed by the end of 2025.
The US government allows production tax credits of up to $25 a megawatt hour to be claimed on the first 10 years of electricity output from wind, geothermal and closed-loop biomass projects and up to $13 a MWh on electricity from other biomass, landfill gas, incremental hydroelectric and marine and hydrokinetic projects.
It allows an investment tax credit of up to 30% on solar and fuel cell projects.
Projects that qualify for production tax credits have the option to claim up to a 30% investment tax credit instead.
The tax credit amount depends on when construction started. The credit amounts have been phasing out as construction-start deadlines pass. (For more details, see "Renewable energy tax credits extended.")
It is not enough merely to have started construction in time. The IRS also requires that construction be completed in most cases within four years after the year construction started or the developer must be able to prove continuous work on the project.
The tax equity market has been reluctant to finance projects that have to rely on proof of continuous work.
Last year, the IRS gave projects on which construction started in 2016 or 2017 five years to finish construction. (For more details, see "Notice 2020-41: IRS extends deadlines for renewable energy projects.")
Also last year, it gave offshore wind projects and projects on federal land that require construction of high-voltage transmission lines 10 years to finish construction. (For more details, see "Notice 2021-05: IRS grants relief for offshore wind projects and projects on federal land.")