U.S. Stimulus Bill Extends Wind & Solar Tax Credits, Introduces Cleantech R&D Plan
On Monday, December 21, the United States Congress passed a second stimulus package in response to the COVID-19 pandemic. In comparison to the first relief bill, the renewable energy and cleantech industry received dedicated attention. Here is what you need to know:
The solar Investment Tax Credit (ITC) was granted a partial two-year extension
- The wind Production Tax Credit (PTC) received a partial one-year extension
- Offshore wind projects can now qualify for a new ITC through 2025
- $35 billion will be authorized for energy research and development programs
See below for a breakdown of how this will impact a variety of renewable energy technologies and opportunities for corporate offtakers:
Solar
Let’s start with solar. Previously, developers would have needed to commence construction on projects by the end of 2020 to receive the 26% ITC and by the end of 2021 for the 22% ITC. In both cases, projects also would have needed to be placed in service by the end of 2023.
Now that the ITC deadlines have been extended by two years:
- Projects that begin construction before the end of 2022 and are placed in service by the end of 2025 qualify for the 26% ITC.
- Projects that begin construction by the end of 2023 and are placed in service by the end of 2025 qualify for the 22% ITC.
- As before, any projects that begin construction or are placed in service after these deadlines qualify for the 10% tax credit.
The time frame for the full 30% ITC has not been changed. In this case, projects needed to have commenced construction by early 2020 and must be placed in service by the end of 2023 to qualify.
This tax extender is expected to stimulate additional solar growth through 2025, as projects now have more time to either secure the ITC tax credits via commencing construction (or through safe-harbor provisions). This opportunity may translate into more economically competitive power purchase agreement (PPA) opportunities for voluntary corporate offtakers.
Onshore Wind
Onshore wind received a partial one-year PTC extension. Previously, developers seeking to qualify for the second tranche of the 60% PTC would have needed to commence construction on projects by the end of 2020 and place them in service by the end of 2024.
With this tax extension:
- Projects can qualify for the 60% PTC, so long as construction begins by December 31, 2021 and they are placed in service by the end of 2025.
- No changes were made to any of the other tranches of the PTC.
The one-year extension will result in more wind projects qualifying for the start of construction over the course of 2021, which will add to the pool of economically viable projects available for corporate offtakers.
In theory, a corporate PPA could now be signed as late as the middle of 2023 (allowing 18 months for financing and construction) to meet the 2025 deadline and earn the 60% PTC. Prior to the tax extension, the PPA signature target was the middle of 2022.
Offshore Wind
Offshore wind also received a welcome boost, and it was likely the biggest “winner” among the renewable technologies included in the package. Offshore developers—for the first time—have the option to qualify for a 30% ITC on a tax-basis, so long as construction begins after 2016 (a retroactive change) and before the end of 2025. This tax benefit is expected to help stimulate the East Coast’s goal of executing 29 GW of offshore wind by 2035.
The IRS also granted relief for offshore wind in December 2020 within Notice 2021-05. The Notice clarifies that offshore wind projects and renewable energy projects located on federal land can qualify for federal tax credits, so long as construction is complete up to 10 years after commencing. Previously, such projects had only a 4-year window to complete construction.
Clean Energy R&D
The spending bill also included $35 billion in clean energy research and development funding over the next five years. Solar power will benefit from $1.5 billion, wind power will gain $625 million, and energy storage will receive $1.08 billion. Additional funds will be dedicated to grid modernization, geothermal, hydropower, carbon capture, and more.
The various provisions throughout the spending bill have been referred to as “The Energy Act of 2020”. The industry’s expectation is this bill will help to enable the technologies and conditions needed to advance domestic decarbonization.
Election Results
On January 6, 2021, the Democratic party won both Georgia U.S. Senate runoffs, effectively giving Democrats control of the U.S. Senate (with Vice President-elect Harris casting the deciding vote on 50-50 deadlocks). This political shift signals the potential for additional environmental legislation in the first two years of President-elect Biden’s term in office.