On Dec. 15, U.S. congressional leaders reached an agreement on an omnibus spending bill, which includes a provision that would extend the expired production tax credit (PTC) and investment tax credit (ITC) until 2020.
According to the agreement, the PTC and ITC would be extended for this year and 2016 and continue at 80% of present value in 2017, 60% in 2018 and 40% in 2019. As with previous extensions, the rules will allow wind projects to qualify as long as they start construction before the end of the period.
The deal also includes an extension of the solar ITC, which will also be subject to a phaseout. Solar projects that are under construction by December 2019 will fully qualify for the 30% ITC. The credit will fall to 26% for projects starting construction in 2020 and 22% for projects starting construction in 2021.
The PTC – the U.S. wind industry's most important federal tax incentive – provides wind developers with a $0.023/kWh credit of electricity generated to the power grid. It is expected to be a multiyear extension of renewable energy tax credits and would secure several years of predictable policies that encourage private investment in wind energy.
The U.S. wind industry has long struggled to maintain momentum each time the federal incentive has come up for renewal. With the proposed long-term phaseout, some industry watchers anticipate the PTC will no longer be offered.
‘I would expect that most developers will see this extension as the last one,’ explains Gregory Jenner, partner at law firm Stoel Rives. ‘Therefore, we likely will see a push to do as many [projects] as possible before the PTC expires and/or begins to step down.’
As far as timing, the deal must survive passage in both chambers of Congress – a daunting challenge as legislators are trying to pass both a spending bill and a tax extenders bill, according to Keith Martin, partner at Chadbourne & Parke.
On Dec. 16, House leaders were counting on Democrats to pass the spending bill and Republicans to pass the tax extenders bill.
According to Martin, 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.
However, Martin cautions, ‘With five U.S. 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.’
As if to complicate matters, Martin notes the federal government runs out of spending authority at midnight on Dec. 16. Nonetheless, both houses are expected to pass continuing resolutions on Dec. 16 to push the deadline for congressional action on the omnibus spending bill to Dec. 22.Â
Not surprisingly, the PTC news was welcomed by the American Wind Energy Association (AWEA).
‘If this passes, our industry will get a break from the repeated boom-bust cycles that we've had to weather for two decades of uncertain tax policies,’ says Tom Kiernan, AWEA's CEO.
Kiernan says the deal will drive more development and incent near-term prospects.
‘In order to keep the wind energy success story going, we will need to continue to work with Congress and the White House in the years ahead to level the playing field with other energy sources that receive permanent tax support.’
UPDATE – Thursday, Dec. 17: This afternoon, the House approved the tax extenders package but did not vote on the omnibus bill. That vote is now expected to take place on Friday.
UPDATE – Friday, Dec.18, 10:00 a.m. ET: The House has passed the omnibus bill and sent it to the Senate, which is expected to vote on and pass the legislation this afternoon.
UPDATE – Friday, Dec. 18, 12:30: The Senate has followed suit and passed the legislation.