Congress has reached a bipartisan deal that contains important emergency relief measures for the renewable energy industry, including a one-year extension of the production tax credit (PTC) and a new 30% investment tax credit for offshore wind projects that start construction through 2025.
The full legislative package combines a $900 billion COVID-19 relief package and an omnibus spending bill for 2021 with tax extenders and energy policy changes.
Projects starting construction in either 2020 or 2021 will qualify for production tax credits at 60% of the full rate on the electricity output for 10 years or an 18% investment tax credit on the project cost in the year the project is put in service. Production tax credits at 60% of the full rate are currently $15 per MWh.
The change is retroactive. Thus, any project on which construction started as far back as 2017 will now qualify for a 30% tax credit. However, the project must be completed within four years after construction starts under the current IRS policy. The U.S. Treasury is considering whether to extend this to seven or 10 years.
“This bipartisan agreement is a major win for American energy consumers, providing more opportunities for them to receive reliable, zero-carbon and pollution-free electricity in their local communities,” says Heather Zichal, CEO of the American Clean Power Association (ACP). “As we enter the new year, stable policy support will help ensure that wind can continue providing the backbone of our country’s electricity growth. We also applaud Congress for recognizing the enormous potential of offshore wind, the country’s largest untapped electricity source, as a brand-new provider of jobs for American workers and clean power for American families.”
Offshore wind developers will not have the option to claim production tax credits on the electricity output – instead of an investment tax credit – of any project on which construction starts after 2021. The PTCs for a project on which construction starts in 2021 or earlier are the PTCs under the phase-out schedule for wind projects on land.
Wind projects on land have been given another year to start construction to qualify for tax credits. Before the bill was passed, they had faced a deadline of the end of this year – the new deadline is the end of 2021. Congress did not fix a “dip” in the tax credit rate for projects that started construction in 2019. The tax credit rate dipped to 40% of the full rate for 2019 projects compared to 60% for 2018 and 2020 – and now 2021 – projects. A similar extension at the end of last year, but at a higher tax credit rate, set off a scramble by wind developers to rework construction arrangements to push the start of construction on projects into this year.
“With 13% of the clean energy workforce out of a job this holiday season due to COVID-19, we are grateful that lawmakers included common sense emergency relief measures for the renewable sector in this package,” says Gregory Wetstone, president and CEO of the American Council on Renewable Energy (ACORE). “Extending the wind tax incentives and making the investment tax credit available for offshore wind projects is a bipartisan vote of support for the renewable industry and the hundreds of thousands of Americans building our clean energy future. These policies will help get people back to work, accelerating our economic recovery and achieving greenhouse gas emissions reductions that scientists tell us are necessary to protect our climate.”